will have all eyes on the prospects for subscriber growth when the video streaming service reports its June quarter financial results on Tuesday.
The company added 36.6 million subscribers in 2020, bringing the total to more than 200 million as consumers in the Covid-19 lockdown wanted to entertain themselves.
But investors are concerned about a slowdown due to a combination of less content due to limited new business during the pandemic, a pull forward effect from last year’s massive growth and a recent price hike in some markets.
In the March quarter, Netflix (ticker: NFLX) added 4 million net new subscribers, 2 million fewer than originally expected — and forecast just 1 million net additions for the June quarter. The company will report June quarterly results after Tuesday’s closing bell.
Netflix’s other guidance for the June quarter calls for revenue of $7.3 billion and earnings of $3.16 per share, with Street’s estimates roughly in line with the company’s projections. The Street sees 1.1 million net ads.
For the September quarter, The Street sees revenue of $7.48 billion, with earnings dropping to $2.17 a share as production resumes and costs rise. The Street sees a net gain of 5.6 million subscribers in the third quarter — the single number most likely to move the stock when the report comes in.
Another wildcard would be any discussion of the company’s much-discussed yet unannounced plans to enter the streaming video game market.
Looking ahead to earnings, Evercore analyst Mark Mahaney writes that he fears Street’s outlook for subscriber growth for the September quarter is too aggressive given “a somewhat soft content slate,” as well as competing launches from
and HBO in some international markets. Still, it retains its Outperform rating and a target price of $655.
Similarly, Morgan Stanley analyst Benjamin Swinburne writes that a combination of the reopening of the consumer economy and the lingering effects of manufacturing in 2020 “suggests” risks to both second-quarter results and the third-quarter outlook. He forecasts 4 million net gains for the September quarter, well below the Street consensus – the stock will almost certainly sell if he’s right. But he notes that “more content is on the way” and the company should see an acceleration in subscriber growth in the fourth quarter and beyond. He keeps his Overweight rating and $650 target price.
BofA Global Research analyst Nat Schindler writes that the June quarter results are likely to be “irrelevant,” with investors focusing more on guidance in general and subscriber growth in particular. But he adds that “big content launches” in the second half, such as a new season of Netflix’s great sci-fi series “Stranger Things,” should fuel subscriber growth in the coming year. Schindler maintains its buy recommendation and target price of $680.
Netflix shares fell 0.4% to $528.46 in afternoon trading on Monday, part of a broad sell-off linked to a spike in Covid-19 cases.
Write to Eric J. Savitz at email@example.com