Fengshui turns, Netflix wants to be bilibili| Detailed financial report

The number of new paying users in Q2 was only 1.54 million.

Fengshui turns, Netflix wants to be bilibili| Detailed financial report

©️Original Author | Li Tingting

Netflix handed over a terrible financial report as expected by the market.

Although revenue and earnings are still growing steadily, Netflix’s net profit level is lower than market expectations, and earnings per share are not as good as market expectations. Moreover, one of Netflix’s core performance indicators, “the number of new paying subscribers” dropped to a freezing point in Q2, only 1.54 million , Far lower than 10.09 million in the same period last year.

Since the outbreak early last year, Netflix’s performance is too rosy, the market has been pre- expect a year’s Q2 performance does not look good, but even so, guiding the flow of money in the secondary market of Wall Street analysts, but then Netflix have high expected. According to Seeking Alpha data, 41 Wall Street analysts gave ratings to Netflix, of which 23 were very optimistic and only 5 chose to be short, with an average target price of US$592.66 (current price US$531.05).

Wall Street’s high view of Netflix is ​​related to its recent series of innovative businesses. After entering e-commerce and entering games, Netflix told a “B-stop” story that Chinese investors are very familiar with. Gold overseas financial media body The Motley Fool bluntly, investors Netflix incoming electricity providers can be compared with the electricity supplier business model China B station.

In the past ten years, Netflix, as a successful sample of streaming media, has been studied and imitated by Chinese players. However, the living soil is different, the competitive environment is different, and the user habits are different. The “Chinese Netflix” has not yet appeared. In one step of self-innovation with a knife, tells a story that is more familiar to the Chinese market.

The turning point came quietly, and Netflix clarified the truth that there is no one-time-for-all business model, and some are just the best solutions for different stages and different markets. In the infinite war of global streaming media, this may give the “Chinese Netflix” who are still struggling in the quagmire of long video losses a little enlightenment and confidence.

Fengshui turns, Netflix wants to be bilibili| Detailed financial report

The number of paying users can’t rise

First, scan the Q2 financial report as a whole, perhaps because market expectations are too low, and Netflix’s poor performance has not caused too much repercussions in the secondary market:

In Q2 of 2021, Netflix achieved revenue of 7.34 billion U.S. dollars, a year-on-year increase of 19.4%; realized operating profit of 1.85 billion U.S. dollars, a year-on-year increase of 36.1%, and its operating profit margin increased from 22.1% in the same period last year to 25.2%;

Achieved a net profit of US$1.35 billion and a net profit rate of 18.4%, which was lower than market expectations;

Earnings per share fell from US$3.75 in Q1 this year to US$2.97, which fell short of market expectations;

The net cash flow from operating activities and the free cash flow both turned losses year-on-year and quarter-on-quarter, at US$64 million and US$175 million, respectively.

In Q2 of 2021, the number of new Netflix subscribers was only 1.54 million, which was much lower than the same period last year, but higher than Netflix’s estimated 1 million.

Fengshui turns, Netflix wants to be bilibili| Detailed financial report

Fengshui turns, Netflix wants to be bilibili| Detailed financial report

The most noteworthy of the above data is the number of new users. In the long development of Netflix in the past, its core business model is very pure: revenue = number of users x membership fee.

This simple model has made Netflix been sought after by Wall Street-the increase in the number of users is the increase in revenue. When the content is strong enough, membership fees can be further “optimized” (for example, in October last year, Netflix The monthly fee in the United States has been raised again). It is based on this simple business model that every increase in Netflix’s membership fee will drive the stock price higher, and the user growth data disclosed in each Netflix financial report is a key indicator of Netflix’s growth.

This can explain why Netflix was overwhelmed by doubts in 2018. At that time, Netflix’s investment in content continued to expand, but it could not stop the slowdown in user growth, and the marginal benefits were obviously diminishing. This also can understand why Netflix will usher in the beginning of the epidemic rose, red house home advantage to push dynamic new user Netflix surged in 2020 Q1 Netflix subscribers grew 15.8 million, Q2 increase of 10.09 million.

After the rapid growth during the epidemic, the number of Netflix global users has exceeded 200 million at the end of last year. According to the latest financial report data, as of Q2 2021, the number of Netflix global paying users reached 209 million.

Fengshui turns, Netflix wants to be bilibili| Detailed financial report

This is one of the reasons why Netflix is ​​highly viewed. Netflix has accumulated 200 million users and contributed a larger revenue scale. Investing these revenues in content will increase user stickiness and attract new users with better and more content in the future. Simply put, it is driven by the epidemic Netflix’s already slowing “user-revenue-content-user” growth flywheel accelerates again.

Of course, with the end of the epidemic dividend period, Netflix ushered in an expected decline in the number of new users in the first half of this year. In Q1 of 2021, the number of new Netflix users was only 4 million, which was lower than the market’s expectations of 6.2 million; in Q2 of 2021, the number of new Netflix users was only 1.54 million.

After the first quarter’s financial report was disclosed, the market was disappointed. In contrast, investors had already expected that the number of new Netflix subscribers in the second quarter would fall again, and shifted their focus to the third quarter.

According to several research reports, analysts generally expect that the number of new Netflix users will rebound in the second half of this year. On the one hand, since the user growth rate in the second half of last year was not as fast as that in the early stage of the epidemic, the base number for user growth in the second half of this year did not increase. As high as half a year; on the other hand, in the second half of the year, Netflix will have a series of popular dramas, animations, and movies online, including the third season of “Sex Education”, the fourth season of “Stranger Things”, the third season of “You”, etc., these are strong The return of the series can bless Netflix’s content appeal in the second half of the year.

Fengshui turns, Netflix wants to be bilibili| Detailed financial report

Because of this, even if the Q2 subscriber growth is bad, investors still gave Netflix some patience. In the Q2 financial report, more attention should be paid to its Q3 data guidance than the growth of new users this quarter.

According to the financial report, Netflix expects Q3 revenue to be 7.48 billion U.S. dollars, the market is expected to be 7.48 billion U.S. dollars; the third quarter earnings per share are expected to be 2.55 U.S. dollars, the market is expected to be 2.17 U.S. dollars; the number of global paying users is expected to increase by 3.5 million in the third quarter to 2126.8 million , This data is slightly lower than market expectations of 4.87 million.

For Netflix, the real key lies in Q3 and Q4. If it cannot deliver a set of user growth data that satisfies the market, it means that the growth flywheel driven by the epidemic has lost its momentum.

Membership mode approaches the ceiling

Even though the epidemic has provided Netflix with a great help, the hidden worries of Netflix’s main business still exist.

As early as Q3 2017, the number of international paying users of Netflix officially surpassed the number of paying users in the United States. Since then, the growth rate of the number of paying users in North America has repeatedly slowed down, and the proportion of paying users in other overseas regions has continued to expand. In Q2 this year, the number of paying users in North America even showed a downward trend:

In Q2 of 2021, Netflix’s North American market achieved revenue of 3.235 billion U.S. dollars, accounting for 44% of total revenue, and the number of paying subscribers in North America fell by 430,000 to 73.95 million;

Netflix Europe, Middle East and Africa market achieved revenue of US$2.4 billion, accounting for 33% of total revenue, and the number of paying users increased by 190,000 to 68.7 million;

Netflix’s Latin American market achieved revenue of US$861 million, accounting for 12% of total revenue, and the number of paying users increased by 760,000 to 38.66 million;

Netflix’s Asia-Pacific market achieved revenue of 799 million US dollars, accounting for 11% of total revenue, and the number of paying users increased by 1.02 million to 27.88 million.

Netflix’s user growth in North America has peaked and it is turning to overseas to find increments. This is the inevitable development. Generally speaking, overseas markets have also become Netflix’s new growth engines, promoting the expansion of Netflix users and the total scale of revenue.

But the hidden worry is that Netflix’s financial report shows that North America has always been the market with the highest ARPU value in a single month . The larger the market for Netflix except North America, the more difficult it is to do this business-Netflix’s growth point falls on one user. The market with very different content preferences and weak users’ ability to pay is commonly known as “less money, more far away from home”.

Specifically, according to the 2021 Q2 financial report, the ARPU value of Netflix’s North American market is US$14.54, and the ARPU value of the European, Middle East and African markets is not low at US$11.66, but the same user growth rate has slowed; Q2 Netflix’s new users are mainly The source is the Latin American market and the Asia-Pacific market, and the ARPU values ​​of these two markets are only 7.50 US dollars and 9.74 US dollars respectively.

In addition, from the growth trend, it can be found that in the Latin American market, where the user growth rate is fast at this stage, the ARPU value has not been able to keep up with the increase in the number of users, and has even begun to decline.

Fengshui turns, Netflix wants to be bilibili| Detailed financial report

This reveals the limitations of Netflix’s extremely simple business model of “revenue = number of users x membership fees”. Users have a certain limit on the ability of users to bear membership fees, and there is always a bottleneck in the growth of membership. Netflix’s content business It is more difficult to expand across regions and across cultures, but users’ ability to pay has become weaker, and the border benefits are always diminishing.

Netflix needs a new story.

Netflix “B Stationization”

Netflix’s new story is here. Starting from the content, Netflix has begun to explore the field of e-commerce and games.

In terms of e-commerce, on June 10, Netflix launched its first self-operated online retail store Netflix.shop, which is currently only opened in the United States, but will later expand to other countries. Netflix.shop mainly sells peripheral products of Netflix’s IP, most of which are clothing and accessories priced from US$30 to US$135.

In terms of games, Mike Verdu, Facebook’s vice president of AR/VR content for Oculus content ecology, has joined Netflix as the vice president of Netflix’s gaming department. In addition, in early July, Netflix also announced a new agreement with TV producer Shonda Rhimes (producer of “Grey Intern” and “Getting Out of Law”), including the exclusive production and distribution of potential games and VR content opportunities. Bloomberg reported that Netflix’s game plan will be officially launched in 2022.

Video members, e-commerce, games, and Chinese investors who understand station B should be familiar with this business model. According to the 2021Q1 financial report of station B, in its first quarter revenue structure, mobile gaming business accounted for 30%, value-added service business (mainly membership and live broadcast) accounted for 38%, advertising revenue accounted for 18%, e-commerce and other businesses Accounted for 13.3%.

As a streaming media platform, it also cuts into e-commerce and games from the content. Station B can be used as one of the reference systems for Netflix’s future development.

The logic of Netflix.shop is based on the realization of content in the form of IP peripherals. A large number of classic IPs such as “Stranger Things”, “Robin”, and “House of Cards” are in hand. Although its IP industry chain is not enough to support Netflix to tell Disney’s story at this stage, fans should not hesitate to consume some light, content, Products with low unit prices support a new revenue segment for Netflix-refer to station B. Although the e-commerce segment, which is mainly purchased by bilibili members, does not account for a large proportion of total revenue, it is also one of the growth points. 2021Q1 electricity Commercial and other business revenue increased by 253% year-on-year.

Fengshui turns, Netflix wants to be bilibili| Detailed financial report

The story of streaming to the game is more appealing. Station B is a classic successful case. Its growth was once dependent on the blood transfusion of the game business. So far, games still account for about half of its revenue. Netflix, which has accumulated 200 million users, is of course also a good game promotion platform. Before Netflix The online drama “The Witcher” was launched, directly driving the overall sales of the game “The Witcher 3” in 2019Q4 to surge 554% year-on-year, which to some extent proved the influence of Netflix on gamers.

Morgan Stanley analyst Benjamin Swinburne pointed out that considering the potential of video games, Netflix will seize the next $200 billion global consumer market opportunity.

Fengshui turns, Netflix wants to be bilibili| Detailed financial report

The new story of e-commerce and gaming is the main reason analysts have rekindled expectations for Netflix. Even if the new business is still in the very early stage, Netflix has taken this to illustrate the future direction: use more diversified forms to extend user duration, provide changing scenes, and break the commercial ceiling of “number of users x membership fees”.

Big brother Netflix, and China’s rookie station B, one from sticking to the membership model to entering games and e-commerce, and one relying on the game to add value-added services, the two magically end up in different ways. Of course, regardless of the level of paying users and the level of content, there is still a big gap between station B and Netflix, and the markets and user composition of the two are not the same, but if you only look at the growth of the secondary market, ” “Last Wave” really deserves the jealousy of the predecessors.

Fengshui turns, Netflix wants to be bilibili| Detailed financial report

Comparison of stock price growth between station B and Netflix in the past year

Full of bullets

In contrast with the grand story of the future, the staged operating status of Netflix Q2 appears to be less important.

Netflix’s operating data this quarter did not have much to scrutinize, and the overall gap with market expectations was not much. From an operational point of view, Q2 is more similar to a transitional stage. As more popular dramas are launched in the second half of the year, Netflix will truly usher in the opportunity to prove its ability to continue to grow after the epidemic.

What is more worthy of attention is the status of Netflix’s assets. After all, to invest in new business, we must first have enough bullet reserves.

According to the financial report, as of the end of Q2, the total value of Netflix holding cash, cash equivalents and restricted cash was US$7.8 billion, an outflow of US$630 million from the end of the previous quarter.

Current content liabilities were US$4.2 billion, a slight decrease from US$4.4 billion at the end of 2020;

The current ratio is 1.23, 1.25 at the end of 2020;

The debt-to-asset ratio is 66%, 72% at the end of 2020.

On the whole, Netflix is ​​still well on hand, and under the long-term adjustment in recent years, both the asset structure and the current ratio have been optimized step by step. Netflix chose to start a new process at this point, partly based on its good asset status.

In the past year, US stock investors have been more hesitant to Netflix. At the beginning of the epidemic last year, the home bonuses pushed the streaming media sector higher, and Netflix’s stock price had approached $550 in July last year. But another year later, when the Nasdaq 100 index rose by 36.67% (2020.07.20-2021.07.19), Netflix’s stock price rose and fell, essentially stagnating.

As Netflix released the signal of transformation, Wall Street chose to collectively be optimistic about the future development of this big streaming media brother. What about bad earnings? Netflix, which is a content source, has never lacked the ability to tell stories.

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