Netflix 20Q3: record cash flow from ops, some targets raised, cash spent per net add down

Main items 20Q3

• Net adds (2.2m) below forecast (2.5m) due to sub-growth slowdown due to record H1 & pull-forward
• Retention remains healthy & engagement per member HH was up solidly yoy
• Sub growth highest in APAC
• Streamings subs 195.151m (net adds 2.204m)
• UCAN 73.081m, net adds 177k
• EMEA 62.242m, net adds 759k
• LATAM 36.324m, net adds 256k
• APAC 23.504m, net adds1.102m
• Total revenues $6.436b (+22.7%)
• Streaming $6.377b (+23%, lowest rate since 19Q1)
• UCAN $2.933b (+12%, slow-down)
• EMEA $2.019b (+41%, remains in ~40% area)
• LATAM $789m (+6.5%, slow-down)
• APAC $635m (+66%, accelerated, highest since 18Q2)
• DVD-by-mail $58.8m (-18%, same as since 18Q1)
• Streaming ARPU $10.95 (-1.6% but +1% excl. F/X)
• UCAN $13.40 (rising)
• EMEA $10.88 (rising)
• LATAM $7.27 (falling)
• APAC $9.20 (roughly flat)
• Operating income $1.314b, margin 20.4%
• Cash spent on streaming content $3.033b (-19%)
• TTM $13.205b (-3.0% yoy, first ever decline)
• Cash & equivalents $8.422b
• Cash spent (in previous quarter) per net add (in current quarter) on TTM basis: $378 (-19%)

Outlook 20Q4

• Total subs 201.15m, net adds 6.00m
• Revenues $6.572b (+20.2%)
• Operating income $885m, margin 13.5%

Targets

• As the world hopefully recovers in 2021, growth to revert back to levels similar to pre-COVID; expects net adds 21H1 down yoy
• Raises target 2020 operating margin to 18% (from 16), average margin improvement 300 bp per yr but lumpiness increases (due to increased F/X exposure from international expansion & COVID impact); margin target 2021 remains 19%
• FCF 20Q4 to be slightly negative due to production restart, 2020 FCF target $2b (raised from flat to up) due to higher margin & timing of spending; FCF to improve over coming years due to higher profitability & transition to originals production matures; target FCF 2021 between -1b and zero
• No fund raising during 20Q4

Production

• Completed principal photography on 50+ productions since lockdown March 2020, to be shooting 150 productions by end 2020l
• Target original additions 2021 up yoy in each quarter

Viewing stats (first 28 days)

• The Umbrella Academy (new season) 43m
• Lucifer (new season) 38m
• Ratched 48m, American Murder: The Family Next Door 52m
• The Social Dilemma 38m
• The Old Guard 78m
• The Kissing Booth 2 66m
• Project Power 75m
• Enola Holmes 76m
• Cobra Kai (new season) 50m

Promotion & distribution

• Plans StreamFest in India, 201204-5: 48 hr free access
• Distribution deal with Reliance Jio (India): STB integration