Ahead Of Netflix Earnings Report, Here’s What Investors Should Know
Netflix (NFLX Stock Report) will be one of the first tech stocks to help kick off the earnings season. The streaming giant expects to report its second-quarter results after Thursday’s market close, making it one of the FAANG stocks to report earnings this week. With NFLX stock hitting new highs this week, there’s a lot of attention on the streaming service.
With NFLX stocks up 70% higher year to date, expectations are high to say the least. A lot can go right, but a lot can go wrong too. That’s due to the strong price appreciation for the stock and uncertainty of subscribers’ growth during the second quarter. That said, NFLX stock could move on an epic scale following its upcoming Q2 report as investors digest the new information from the company.
NFLX Stock Gains Put Pressure On Earnings Expectations
Netflix is one of the few stocks to have proved resistant to the pandemic that has caused so much pain to so many people and other businesses. Many investment banks are betting that NFLX would fire up upon announcement. Among them, Goldman Sachs Group (GS Stock Report) raised its target price to $670 a share from $540 based on the firm’s confidence that NFLX’s quarterly report will far outpace guidance. Of course, analysts and investment banks could be wrong. However, the rally and positive coverages from global analysts are painting a rosy picture for Netflix.
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Subscriber’s Growth; Key Point To Watch In NFLX Stock
The subscription base is a big concern to some analysts, who worry growth could be nearing its peak. The growth was driven by a spike in demand for streaming TV during the second half of March as consumers were asked to stay at home. During that period, Netflix’s first-quarter subscriber growth blew past expectations. While many analysts were expecting 8 million new subscribers, the streaming giant surprised many investors by doubling the expectations.
The question here is, can Netflix do it again? Probably not to that extent. And because of previous breakthroughs, the company remained very cautious with its own forecast for the second-quarter report. I guess there’s still a great chance of surprising investors again considering the surge of coronavirus cases in the US. This is as many chose to shelter at home to avoid catching the virus. Investors who understand Netflix’s strategy will understand that apart from subscribers’ growth, the company also wishes to increase consumers’ streaming time with the platform.
Fiercer Competition Among Streaming Providers But Content Is Still King For Netflix
Since the end of last year, the streaming provider has been facing more competition than ever. We saw exponential growth in Disney+, Amazon Prime, and the newly launched HBO Max. These are now Netflix’s biggest rivals. To grab a larger slice of cake in an ever-increasing competitive environment, the expenses are expected to be elevated for the entire space.
Among the competitors, Disney+’s (DIS Stock Report) numbers might be worth a closer look. The service saw a 54.5 million burst of new subscribers in a short span of 6 months. The more child-friendly content could be a selling point at a household with children in comparison with Netflix. For the record, Disney+ app was downloaded 752,451 times globally, including 458,796 times in the U.S. from July 3 to July 5. This is 74% higher than the average of four weekends in June. This tells us that competition from new entrants and established video streaming companies could potentially slow down the subscriber’s growth in the streaming giant.
The interesting thing about Netflix is its pipeline of movies ready to roll out. While some competitors, cable and tv programs had to halt production during quarantines, Netflix didn’t have the same issue. In fact, as Netflix’s chief content officer mentioned in Q1’s conference call: “Our 2020 slate of series and films are largely shot,” he said. “(We) are in post-production stages in locations all over the world. And we’re actually pretty deep into our 2021 slate.
The wide range of content is likely to appeal to a large cross-section of international consumers. Many believe the streaming giant stands a strong chance to succeed in the long run. Given much uncertainty and the uptick in coronavirus cases, states and cities encourage people to stay home again. Could we see bigger gains in subscribers’ numbers? It would be wise for Netflix’s shareholders not to jump on any forecasts no matter how positive the second quarterly report may be.