Netflix earnings likely to be weighed by slower subscriber growth – Stock Market News

Raffi Boyadjian, XM Investment Research Desk

Streaming giant Netflix is due to announce its second quarter earnings later today after the market close on Wall Street – the first of the FAANG companies to report. As competition heats up in the sector, all eyes will be on how many new subscribers Netflix managed to attract in Q2 amid concerns about the outlook for subscriber growth in streaming services.

Company to report lower EPS in Q2

Netflix is expected to report earnings per share (EPS) of $0.57, slightly above its own forecasts of $0.55 but nevertheless a whopping 33.25% decrease from a year ago and a 25% decline from the prior quarter when it posted EPS of $0.76. The fall in EPS is likely to be blamed on weaker operating margins.

However, revenue growth is expected to be maintained according to Refinitiv, with analysts estimating the company to report revenue of $4.93 billion in Q2, up from $4.52 billion (9.1%) in Q1. Compared to the same period last year, revenue is estimated to be up 26.25%.

New subscribers expected to be sharply lower

More crucially perhaps for investors, Netflix expects to have added 5.0 million new subscribers during the quarter, of which only 0.3 million are forecast to have been from the domestic US market. This would represent a massive drop from the 9.6 and 1.74 million users added, respectively, in the first quarter. It should be noted, however, that the second and third quarters tend to be slower for new subscribers versus the first and fourth quarters due to seasonal factors.

Total subscribers, meanwhile, are forecast by the Company to grow from 148.9 million to 153.9 million in Q2, crossing the 150 million threshold and helping Netflix to cling to its crown as the world’s most popular streaming service.

Is Netflix in danger of losing number one spot?

However, its leadership is increasingly under threat from the likes of Amazon Prime, HBO, and Disney’s Hulu and upcoming Disney+ services. Aside from the stiffer competition, Netflix is facing other trouble as it could soon lose the rights to stream popular series such as Friends and The Office.

Still, the Company’s own original productions remain its biggest shows and investors are optimistic about the streaming provider’s earnings prospects. Hence, the stock has retained its mean recommendation of “Buy” and this is also reflected in the performance of the share price.

Shares have outperformed broader US market

Netflix shares are up almost 37% in the year-to-date, outperforming both the S&P 500 (19.8%) and the Nasdaq Composite (23.9%) of which it is a constituent of. Having beaten analyst estimates in each of the past five quarters, another solid set of earnings by Netflix could help the stock price rebound to the recent top around $382, which is the 78.6% Fibonacci retracement of the downleg from $423 to $231. A break above this strong resistance could then clear the way for the all-time high of $423.21 from June 2016.

But should the Company break its impressive earnings run and post disappointing figures, the immediate support at the 50-day moving average ($360) could be breached. This would then bring the stock within range of the 61.8% Fibonacci at $350 and the 200-day moving average at $338. Sharper losses in the share price are possible if a negative earnings surprise raises questions about the Company’s strategy, in particular, the recent hike in the monthly subscription price, which may have started to deter new users.