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How Netflix, Amazon, and Twitter Disappointed in Q3

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In the quarter that ended in September, Microsoft (MSFT) and PayPal reported extremely impressive results, as was evident in their stock price movements. Microsoft crossed the $140 mark, and PayPal stock shot above $100 on October 25. But what about the stocks that didn’t perform according to expectations? Netflix’s (NFLX) results were good, but it’s also expecting increased competition in the streaming content segment, whereas Amazon (AMZN) and Twitter (TWTR) disappointed investors on the earnings front.

Let’s take a look at these three stocks’ earnings releases and the effects their results had on their stocks.

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Netflix’s EPS rise, revenue falls in the third quarter

Netflix released its third-quarter results on October 16. The online content streaming company reported EPS of $1.47, over 40% higher than its estimated EPS of $1.04. However, the company reported revenue numbers that were much lower than what analysts initially anticipated. The third quarter was the second quarter in a row during which Netflix missed its revenue guidance. Netflix disclosed revenue of $5.24 billion compared to the consensus estimate of $5.25 billion in the quarter. In the second quarter, Netflix’s revenue was approximately $11 million lower than expected.

Netflix’s domestic viewer base falls, international viewers on the rise

The decline in Netflix’s third-quarter revenue growth can be attributed to two distinct factors. The first is a lower number of new users, and the second is increasing competition in the online content streaming space.

According to Netflix, it added 517,000 total domestic subscribers and 6.26 million total international subscribers in the quarter. Its local subscriber additions were much lower than expected by FactSet. According to FactSet, the domestic subscription estimate for the quarter was 802,000, and the international subscriber estimate was 6.05 million.

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Netflix’s outlook in the content streaming space

Netflix expects increased market competition to capture its viewer base. CEO and cofounder Reed Hastings said he was wary of the upcoming competitors in the market. He commented, “It is interesting that we see both Apple and Disney launching basically in the same week after 12 years of not being in the market.”

Disney+ could be the company’s stiffest competition in the streaming segment. After all, Disney has many established franchises and a vast content library. Netflix, however, relies on producing and airing original content.

The company has adjusted its fourth-quarter guidance figures for the market competition. Netflix expects EPS of $0.51 in the quarter, whereas analysts’ consensus EPS estimate is $0.85. The company’s guidance for revenue is around $5.4 billion, and analysts’ consensus revenue estimate is just over $5.5 billion.

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Amazon’s earnings disappointment

After Amazon’s dismal earnings release, Jeff Bezos was dethroned as the world’s richest person. Hopefully that’s enough to communicate the magnitude of disappointment that came with Amazon’s third-quarter results. The company’s reported EPS of $4.23 were lower than Refinitiv’s forecast of $4.62. However, its reported revenue of approximately $70 billion was higher than Refinitiv’s estimate of $68.8 billion. Its revenue rose 24% in the quarter, primarily due to one-day shipping. Amazon has already invested approximately $1.6 billion in the second and third quarters of 2019 combined. It has plans to increase this spending by up to $1.5 billion in the fourth quarter.

Of this total revenue, AWS (Amazon Web Services) contributed approximately $9 billion. FactSet expected AWS’s revenue to be $9.1 billion.

Amazon’s fourth-quarter estimates

In the final quarter of fiscal 2019, the company’s management expects its revenue to come in somewhere between $80 billion and $86.5 billion. It expects a fourth-quarter growth rate of 11%–20% compared to the fourth quarter last year. The company’s operating income estimate for the fourth quarter is in the range of approximately $1.2 billion–$2.9 billion.

AWS’s operating income for the third quarter was $2.26 billion. This operating income growth rate has increased by 9% from the same period a year ago. AWS has always been a significant contributor to Amazon’s consolidated figures. Its falling growth rate is likely a serious concern for the company. Additionally, AWS just lost a defense deal worth $10 billion to Microsoft. Until last month, Amazon was the prime contender in the Joint Enterprise Defense Infrastructure deal. However, it still retains the lion’s share of the public cloud space, with a market share of approximately 48%.

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Twitter bugs drag on third-quarter results

Twitter faced glitches in its software during the third quarter, which took a severe toll on its quarterly earnings release. Twitter’s EPS estimate was $0.20, but its actual reported EPS during the third quarter were $0.17. Its reported revenue of $823.7 million was 6% lower than Refinitiv’s estimate of $874 million. Twitter also had to roll back much of its ad campaign strategy, which directly affected its revenue.

The company faced multiple instances of technical snags in July and August. One of the cases was the issue Twitter faced with its legacy ad campaign MAP (mobile application promotion). These glitches led to a violation of the company’s data collection policies. In response, it decided to step back and stop targeting specific ads based on data collected from certain sources. The move led to a lot of missed opportunities and poor ad revenue figures.

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Twitter’s fourth-quarter estimates

Bugs and glitches marred Twitter’s third-quarter results. However, its management released an optimistic view for the fourth quarter. Management’s guidance for revenue is $940 million–$1.01 billion. It expects its operating income to be in the range of $130 million–$170 million.

Closing note

Netflix could be facing strong headwinds given increasing competition in the online streaming industry. Disney+ is expected to release on November 12. Even Netflix’s management will be eager to gauge viewer response and decide on a suitable strategy.

Twitter lost out in the third quarter due to internal issues, something it could have avoided. Its fourth-quarter performance will depend entirely on how effective its corrective policies are.

As for Amazon, its strategy is still unclear. Given the company’s regulatory concerns and AWS reporting a slower growth rate, we’ll have to see what Bezos pulls out of his hat this time around.

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