Hollywood to Aid Netflix’s (NFLX) User Growth in Q3 Earnings

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Netflix (NFLX Free Report) has snapped up a number of Hollywood ‘A’ listers to boost its content portfolio. Partnership with prolific creators like Ryan Murphy, Shonda Rhimes, Shawn Levy and Jenji Kohan provides an impetus to the company’s original content expansion strategy.

Notably, Hollywood stars like Will Smith (Bright), Brad Pitt (War Machine), Jake Gyllenhaal (Okja), Henry Cavill and Nicholas Hoult (Sand Castle), Angelina Jolie (First They Killed My Father), Steven Spielberg, Francis Ford Coppola, Guillermo Del Toro and Meryl Streep (Five Came Back) have already worked with Netflix, either as actor or director.

Prolific actors like Jennifer Aniston and American stand-up comedian Tig Notaro have also joined the list. Reportedly, Aniston is also working with Adam Sandler in Netflix’s new comedy show Murder Mystery.

Netflix’s massive spending on content can primarily be attributed to high production values, which is supported by the company’s whopping budget. The growing involvement of well-known Hollywood stars definitely makes the shows more attractive. This is likely to boost domestic subscriber growth in the to-be-reported quarter.

Click here to know how the company’s overall Q3 performance is expected to be.

Content Quality to Aid Subscriber Base Amid Stiff Competition

Netflix added 5.2 million subscribers, much less than 6.2 million expected in the last reported quarter. In the Domestic Streaming segment, the company added 0.67 million subscribers, significantly lower than1.2 million expected earlier, which was disappointing.
 

Although management cited over-optimistic guidance, we believe subscriber addition pace has hit a rough patch due to increasing competition from Alphabet’s (GOOGL Free Report) YouTube and HBO.

Post Time Warner’s acquisition, AT&T (T Free Report) has shown interest in increasing spending on HBO for content acquisition. Moreover, aggressive investment toward developing original content by the likes of Apple (AAPL Free Report) and Amazon Prime is intensifying competition in the streaming market.

Further, Disney is also gearing up to enter the streaming market and the pending acquisition of 21st Century Fox’s assets will expand its content portfolio significantly.

Nevertheless, Netflix’s Hollywood partnerships and high production values have helped its shows win accolades and awards. This year at Emmys, the company tied with HBO and won 23 trophies in different categories.

The Zacks Consensus Estimate for Net Subscriptions Additions – Domestic Streaming is currently pegged at 0.67 million.

Netflix currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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