This included some pretty scary projections for the second quarter.
The company’s earnings report for the second quarter, which will be released after the market closes on Tuesday, is just around the corner.
Netflix (Nasdaq: NFLX) reported a net loss of 200,000 members in the first quarter and forecasted another two million in the second.
On the first quarter earnings call, Reed Hastings announced that the business had opted to launch an advertising-supported subscription tier in the wake of this stunning outcome. This was a sea change from the platform’s earlier adamant resistance to advertising.
Also, CEO Reed Hastings said Netflix is making efforts to limit password sharing—the company believes millions of families are using Netflix without paying a thing.
Netflix’s forecasts for the second quarter include revenue of $8.05 billion and earnings of $3 per share; the Street consensus predictions aren’t far off, with $8.04 billion and earnings per share of $2.96. The Street expects revenues of $8.11 billion and earnings per share of $2.77 for the third quarter ended September 30.
Stranger Things Season 4 debuted in the second quarter, becoming Netflix’s second-most-watched series ever, behind only Squid Game. Netflix’s earnings are always reported in terms of subscriber trends, and there is no evidence to suggest that the new adventures of Hawkins’ School for Good and Evil have changed Netflix’s subscriber outlook.
Since Microsoft MSFT +0.46 percent was unexpectedly announced as a partner in the company’s advertising strategy last week, investors will be on the lookout for any new information on that front.
Netflix’s most likely partners are Google and Comcast (CMCSA) +1.09 percent. But although Comcast and Comcast are competitors for TV advertising money, Microsoft is not.
Ahead of the third quarter, UBS analyst John Hodulik lowered his profit forecasts, saying the company’s guidance is likely to be cautious this year, in the year after, and in the year after that. He predicts that Q2 subscriber growth should be in line with forecasts, with a drop of 2 million. The third quarter growth projection was slashed to 1.3 million net additions, down from 2.8 million and below the Street average of 1.9 million, due to persistent macroeconomic challenges.
“Efforts to tighten down on account sharing and the new ad-supported tier might increase financials, but it will likely take 1-2 years to play out,” warns Hodulik in a statement.
Although competition and pressure on consumer spending might limit growth, he forecasts subscriber growth of 9.5 million in 2023. While Netflix is a “long-term secular leader,” the company’s ability to “re-accelerate growth is modest, which keeps us neutral,” the analyst says.
Evercore ISI analyst Mark Mahaney has voiced similar worries. For the June and September quarters, he feels that the current Street subscriber projections are acceptable. Still, he sees some possible downside due to the prolonged economic downturn, competitor content launches, and a content-heavy Q3. Mahaney maintains his “In-Line” rating and $245 target price, but he is more optimistic about the long-term prospects for the company.
Despite the lack of catalysts for the stock in the short term, “We believe that the deployment of an ad tier might be a medium-term catalyst that could reduce churn and perhaps re-accelerate sub additions,” he says.