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  • Jamie O'Donoghue

Subscription-Based Earnings Wrap Up

The subscription economy is very much on the rise, with some of the world’s best-known and most profitable businesses clambering for market share. In recent weeks, we saw a number of companies with subscription-based models come out with their quarterly earnings. Here are 5 of the most noteworthy.

Photo by Heidi Sandstrom. on Unsplash

1. Netflix

A few weeks back, Netflix (NASDAQ: NFLX) reported revenue of $4.9 billion for the quarter, representing a 26% jump from the year-prior period, while earnings came in at 60 cents per share. Both results surpassed Wall Street’s expectations.

However, if we dig into these figures a little more deeply, they begin to tell a different story (Netflix stock tanked the day after it posted the report).

The true cause of Netflix’s woes lay in its underwhelming new subscriber numbers. At the beginning of last quarter, the company had anticipated about 4.8 million new additions to its platform. The actual figure was closer to 2.8 million.

While some commentators have suggested that Netflix’s disappointing growth can be attributed to an influx of powerful competitors — most notably Disney’s forthcoming Disney+ — the company was quick to dismiss these concerns.

“We don’t believe competition was a factor since there wasn’t a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions (while our over-forecast was in every region),” a company spokesperson said.

Rather, Netflix claims that the poor figures can be blamed on other factors, including price increases in certain regions and a less compelling content slate in Q2.

2. Amazon

In July, Amazon (NASDAQ: AMZN) posted a mixed quarterly report, marking an end to its heroic run of record-breaking earnings.

The company reported earnings of $5.22 per share, falling short of consensus estimates of $5.57 per share. Meanwhile, revenue came in at $63.4 billion, representing a 20% jump year-on-year, and surpassing expectations of $62.5 billion.

In spite of the strong revenue figures, Amazon’s profit margins were eaten away by high spending in the quarter, mostly due to investments in next-day delivery for its Prime business. Included in these investments was a major campaign to update its delivery infrastructure and revamp its fulfilment centres. 

While the mixed bag of results did bring a four-quarter record profit streak to an end, Amazon seems to have set itself up this quarter to break even more records in the future.

3. Spotify

Like Amazon, Spotify (NYSE: SPOT) had a mixed quarter. Investors were mostly disappointed with its subscriber numbers, though it came out with strong financials.

The company said its revenue rose 31% year-on-year to $1.86 billion, while operating expenses climbed by 4%. It posted an operating loss of $3.34 million, which easily beat estimates of a $62 million loss.

Elsewhere, the company reported a 29% year-on-year jump in monthly active users and a 31% jump in subscribers. The numbers stand at 232 million and 108 million, respectively. While an 8 million subscriber boost is arguably quite impressive, the figure did not meet estimates of 8.5 million subs.

This means the company missed on what many consider its most important metric, and the best guide to its health — subscription numbers. With admirable brevity, Spotify admitted as much.

“We missed on subs… That’s on us,” a spokesperson said.

4. Match Group

As it draws negative attention over a spate of ugly lawsuits, Match Group (NASDAQ: MTCH) beat on both the top and bottom lines in the last quarter.

Reporting on its third quarter, Match posted total revenues of $498 million, representing growth of about 18% from the same period last year and comfortably beating analyst expectations of $489 million. The company also posted adjusted earnings of $128 million, or 43 cents per share. Although this was down slightly on the same time last year, the figure still beat estimates.

Once again, management pinned the company's performance on the success of its most popular app, Tinder. This app alone reported 5.2 million average subscribers in the quarter, 1.5 million more than last year. The company is seeing growth in other areas, however, with global downloads for its Hinge app — advertised as "the dating app for people who want to get off dating apps" — increasing more than threefold in the quarter compared with a year ago.

5. The Walt Disney Company

Another company that failed to meet expectations was Disney (NYSE: DIS).

Disney earned $1.35 per share in its last quarter, 40 cents below average analyst estimates. This came on top of actual revenue of $20.25 billion versus estimates of $21.47 billion. 

As earnings increased, so too did spending, with total costs climbing 55% to $17.5 billion from the same period a year ago. Disney’s direct-to-consumer business unit posted an operating loss of $553 million because of “costs associated with the upcoming launch” of its streaming services.

CEO Bob Iger described their streaming service (Disney Plus) as “the most important product that the company has launched” during his two-decade tenure. “Nothing is more important to us than getting this right,” he said.

Iger also confirmed details for their streaming package on Tuesday, which starts at $6.99 a month or $69.99 per year. He also confirmed a $12.99 per month bundle containing subscriptions to Disney Plus, ESPN+ and Hulu, making it cheaper or on par with its main competitors.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Amazon, Match Group, Netflix, and The Walt Disney Company. Read our full disclosure policy here.

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