Netflix Q3 Review: Safe Sub Target Wasn’t Safe Enough

Yinchen Niu/VIP

Underpromise, overdeliver.

That’s been the mantra of Netflix ever since the coronavirus era started and helped catapult the streamer to add almost 16 million subs in Q1 (more than double the 7 million it guided for). In that earnings report, Netflix cautioned growth would slow as stay-at-home orders were lifted.

In Q2, Netflix’s global net subscriber adds were about 10 million (versus 7.5 million guidance), and it again cautioned against lofty growth expectations, saying that H1 ’20 results likely ate away at would-be H2 ’20 growth.

Unfortunately, Netflix didn’t seem to lean into that mantra heavily enough months ago when it was concocting its relatively low Q3 subscriber forecast of 2.5 million, which it reported missing by 300K earlier today during its earnings call for the September-ended quarter.

Netflix finance VP Spencer Wang attempted to pad the miss by mentioning the company doesn’t “over-focus on any 90-day period” and that the streamer would have slightly beaten its 2.5 million subscriber target if the quarter was two days longer.

Still, investors responded accordingly to the company missing one of its most important growth metrics: Netflix stock dropped more than 5% in after-hours trading.

Don’t expect Netflix’s demeanor to change course as 2020 comes to a close as a result, though. It again sprinkled familiar mentions that early 2020 growth will come at the expense of growth later in the year and guided for Q4 sub adds almost 3 million lower than what it added in the same period one year prior.

Maintaining the underpromise-overdeliver mindset could end up paying off for the streamer in the fourth quarter, as portions of the country are forced to spend more time indoors as a result of the winter weather but also due to the potential impact of once again spiking COVID-19 cases.

Mounting evidence shows a third wave of COVID-19 cases could cause more businesses to roll back reopening plans, for example.

Those signs pointing toward the possibility of more consumers staying home could help juice sub sign-ups in Q4, at least domestically.

The fact that Netflix is releasing an impressive array of prestige films in the coming months (“Hillbilly Elegy,” “The Life Ahead” and “Mank,” to name a few) to boost its Oscar chances could help make the service more enticing to those who have yet to subscribe.

Keep in mind Netflix just ended its 30-day free trials in the U.S., so some prestige film-seeking consumers could sign up and forget to cancel, helping pad the streamer’s Q4 sub count.

Another factor that could be beneficial to Netflix’s Q4 growth is more months will have passed since its “Cuties” scandal. Some subscribers who left because of the French arthouse film could decide they made enough of a statement already and return to the service in time for its holiday original programming, for instance.

The potential impact of those returning won’t be that big, as data implied the “Cuties” cancellations could have been immaterial, but given Netflix only missed its Q3 guidance by 300K, returning subscribers might help make a difference.