What to expect from Netflix Q4 earnings

Yahoo Finance's Dan Roberts, Brian Sozzi, Julie Hyman, and Myles Udland preview Netflix's Q4 earnings report.

Video Transcript

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JULIE HYMAN: Netflix is set to report its numbers after the close of trading today. And we've been watching, of course, as always, the subscriber numbers. We talked to Bernie McTernan last week. He's an analyst who covers the stock, who said we could see some attrition, some churn, because of "The Office" leaving Netflix. Interesting thesis, there. Dan Roberts is with us now. What are you watching for in those Netflix numbers, Dan?

DAN ROBERTS: Well, Julie, you mentioned "The Office." we can also talk, of course, about what everyone sees as the sexiest storyline here, and that is the increased competition. More competition than ever before. You've got Disney Plus. You've got Peacock. You've got HBO Max. And each of those platforms made a fair bit of noise in the past quarter with various new shows that each one had that were a pretty big hit.

Now, that said, I do think you're right that all eyes will be on the subscriber adds. Let's remember what happened last quarter. The company specifically blamed a pull forward in demand due to the record first half of the year it had, and it missed subscriber add expectations with only 2.2 million new subscribers added. Now, that said, the numbers internationally were very good. There's always such a focus on the US.

And also the company, last quarter, beat on revenue. But this is a company where, as we know, in the earnings reports, people kind of ignore the actual financials and just focus on subscriber numbers. And I do think that that will change eventually when the company becomes more cash flow positive. But for now, the subscriber numbers are probably going to be the big picture. And the prediction from Netflix, for its own earnings, was 6 million new subscribers added. That would be a lot better than the 2.2 million last quarter.

But I would also say that you have to balance out the increased competition, which could be negative for Netflix this quarter, with the fact that, after summer, the pandemic worsened. And you had a lot of people going back inside their homes and maybe turning back to TV. Maybe you had people that left Netflix resign up again. Maybe you have people watching or Netflix. And of course, Netflix had "Queen's Gambit" and a number of other surprise hits.

So which factor is going to be more powerful here? Is there going to be attrition because of the increased competition? Are there going to be people who cut their Netflix subscription? Or, are there going to be more people who watch more Netflix because, as I mentioned, those cases really rose. And after summer, when things quieted down, everyone locked themselves up again.

JULIE HYMAN: Yeah, and so we'll see also if people are cutting the cord of a traditional cable more gives them more flexibility to have a bigger suite of these various services. We haven't heard too much talk lately about Netflix's cash position and the spending that it has been doing on all of this programming. Is that still an issue for investors?

DAN ROBERTS: Well, yeah. I mean, I think that's kind of been a negative story about Netflix for years is the cash flow and the amount it spends. And of course what bears, or at least Netflix skeptics-- those who think that the growth can't kind of continue forever-- what they say is that you can't just keep throwing a Band-Aid on that by raising subscriber prices. And Netflix just recently raised prices. Disney Plus is going to raise prices for the first time, by the way.

And people say, well, you can't raise it forever, because eventually you're going to price some people out. I don't know that I fully agree with that. I think there's a lot of runway to raise prices. It all depends on where prices sit for the competition, right? And it's kind of like a rising tide lifts all boats in the sense that if Netflix goes to a certain bar, the others think that they can eventually get to that bar.

But cash flow should get better. Now, of course, Netflix is continuing to spend big. And in fact, the number of original films that Netflix is going to have come out this year is wild. That's their latest ad campaign. The thrust is a new movie every-- I forget if it was every day or every week. But my goodness, it's all about original films. And I do think that that will help. But, look, it's a kitchen-sink strategy.

Whereas Disney Plus, they have way too much content coming out as well. But it's hard to call that kitchen sink, because it all comes from the Disney universe, the Marvel and Star Wars universe. So two different strategies that are both working for now. But I think that'll be a lot of the discussion with this earnings report-- cash flow, subscriber adds, and is Netflix spending too much, as always, on original content?

JULIE HYMAN: Yeah, and we're coming into this earnings report, by the way, with the shares down about 6%, 7% thus far in 2021. They're still up almost 50% over the past year. Thank you so much, Dan. Appreciate it.