Netflix, Inc. (NASDAQ:NFLX) had reported Q3 earnings of $1.41 billion which is a 28% increase compared to last year. But the company did see lower than expected subscribers. BMO Capital Markets Analyst Edward Williams spoke about Netflix’s woes and the impact of Time Warner Inc (NYSE:TWX) HBO’s stand-alone streaming service on CNBC’s ‘Word on the Street’.
Williams said that he gathered two major issues by examining Netflix, Inc. (NASDAQ:NFLX)’s quarter performance. “The subscriber numbers were lower than expected and we really need to get a handle of why,” said Williams talking about the first issue. The video streaming service added about 980,000 new subscribers this year which was significantly lesser than the 1.29 million customers last year.
Williams stressed the importance of finding the root cause for the falling subscriber numbers and suggested that the company must explore if this was the result of an increase in price or if there was some other contributing factor. He mentioned that the disparity between free cash flow and net income was the second issue. Netflix, Inc. (NASDAQ:NFLX) posted third quarter earnings of $59.3 million as opposed to last year’s $31.8 million for the same period.
Williams was of the opinion that Time Warner Inc (NYSE:TWX) HBO’s entry into internet TV will not affect Netflix, Inc. (NASDAQ:NFLX). “I agree with Reed,” he said referring to Netflix Chief Reed Hastings’ comment about how HBO’s online video service would bring in some ‘fun competition’ between the two companies.
Williams explained that since Netflix and HBO have mostly unrelated content, there is no question of one being replaced by the other. He also said that HBO’s target audience, which comprises of American households having broadband connection but no cable TV, is only an insubstantial part of Netflix’s consumer base. He felt that even the pricing options might work out in favor of Netflix and make it the more attractive of the two options.
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