Netflix misses subscriber growth and earnings expectations

Earnings

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Co-CEO of Netflix Reed Hastings (R) and CEO of Nubank David Velez walk together at the Allen & Company Sun Valley Conference on July 08, 2021 in Sun Valley, Idaho.
Kevin Dietsch | Getty Images

Netflix is set to report second-quarter earnings after the bell on Tuesday.

Here are the key numbers to watch for:

  • Earnings per share (EPS): $3.16 expected, according to Refinitiv survey of analysts
  • Revenue: $7.32 billion expected, according to Refinitiv
  • Global paid net subscriber additions: 1.75 million expected, according to Factset

Analysts aren’t expecting blockbuster reports this quarter, with Jefferies analysts using the word “meh” to describe anticipated performance in their earnings preview.

“June results are the day after you’ve slept off a cold. Your head is clear, but you’re not quite 100%…That’s where we are for Netflix. June is likely a non-event and clears the way for a 2H acceleration in sub growth. We aren’t quite yet there, but almost,” the Jefferies analysts wrote in a July 18 note.

Even Netflix isn’t expecting high subscriber growth for its second quarter. The company gave guidance of about 1 million net subscriber additions in its first-quarter earnings report.

The company is set to face a test of whether it can continue to sustain high subscriber growth, though the focus will be on its third quarter guidance. Historically, Netflix posts smaller net subscribers additions in the second quarter. That leaves next quarter’s guidance to indicate whether or not the streaming giant can “get back to its pre-Covid 25mn+ net sub adds/year trend,” Bank of America analysts wrote in a July 16 note.

Investors are anticipating 4.87 million net subscriber additions in the third quarter, according to FactSet data.

Netflix is also facing pressure from tough year-over-year comparisons, since last year consumers were in the midst of the Covid-19 pandemic and spent much more of their time online and in need of entertainment. Worldwide Netflix mobile app downloads were down 38% year-over-year and down 9% quarter-over-quarter, according to Sensor Tower data. Daily active users also dipped more than 20% year-over-year, according to the report.

Still, analysts remain optimistic on the stock.

“We believe that while Netflix will face tough comps in the near term, the company will continue to see long term durable growth despite increasing competition and faces less regulatory scrutiny vs mega-cap tech peers. We continue to see Netflix’s ability to grow as its global content investment strengthens its value proposition,” the BofA analysts wrote.

Much of the optimism comes from Netflix’s upcoming slate of content, much of which had been pushed back into the second half of this year and next year.

“Historically, successful content has been a catalyst for net sub growth, so, after 2Q earnings, we expect investors to focus heavily on the buildup and ultimate success of upcoming content,” Jefferies wrote. “Management has remained confident that back half weighted content will re-accelerate sub growth, bringing the metric closer to its historical cadence. As such, we believe content performance over the next 12 months will play a significant role in shaping how investors view the long-term growth of NFLX.”

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