What's going on?
A week after Disney unveiled details of its competing video streaming service, Netflix came out swinging on Tuesday with better-than-expected first-quarter results – but a worse-than-expected second-quarter forecast (tweet this).
What does this mean?
The aggressively priced Disney Plus doesn’t launch until November, giving square-eyed consumers all the more reason to sign up to Netflix in the meantime. Last quarter, the god of the stream added 1.7 million more paying customers in the US and another 7.9 million around the world – more than investors predicted.
This quarter, however, Netflix expects to add only 5 million more paying subscribers – disappointing investors. If fewer new subscribers aren’t offset by higher prices, Netflix may deliver even lower revenue and profit than it now expects.
Why should I care?
For markets: Could Netflix fade to black?
Netflix’s stock had risen an impressive 30% this year prior to Tuesday’s results. But competitors are fine-tuning their own offerings. Apple’s helping rival streaming services sell subscriptions, while Hulu’s Monday repurchase of a 10% stake in itself from AT&T (at a Hollywood valuation) may put even more power in the hands of new majority owner Disney. Analysts estimate that Disney Plus will initially have significantly fewer hours of content than Netflix. But as Disney churns out more of its exclusive Marvel, Pixar, and Star Wars content – and potentially bundles in Hulu shows to boot – customers may eventually change channels.
The bigger picture: Netflix sets the mood… for investors.
Tech stocks still have an outsized role in determining how investors feel about the stock market overall. The “communication services” sector, which includes Netflix as well as Facebook and Alphabet, represents about 10% of the US stock market – almost as influential as major banks, whose quarterly updates have been unconvincing so far. Netflix’s fall after releasing results on Tuesday may sink broader market sentiment; but then again, Apple finally reaching a legal settlement with chipmaker Qualcomm over royalty payments sent the latter’s stock up 23%.