Analysts: Netflix Set To Report Another Strong Subscriber Quarter

Analysts are expecting another strong performance when Netflix reports its second quarter results later today.

As a result of increased streaming driven by pandemic-mandated shelter-at-home orders, Netflix far surpassed its projected first-quarter 7 million net subscriber adds, adding nearly 15.8 million.

As of April, the company was indicating that it could add about 7.5 million subscribers in Q2, but cautioned that the uncertainties around the timing of quarantine lifts in the U.S. and other countries made estimates “mostly guesswork.”

However, analysts including UBS Evidence Lab, MoffettNathanson and Wedbush Securities are predicting significant subscription gains for the leading SVOD in the latest quarter as a result of a continuing lift from the COVID scenario.

UBS Evidence Lab survey data points to higher gross adds and lower churn across all world regions, including the U.S., analyst Eric Sheridan wrote in a research note.

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UBS raised its global net adds projection for Q2 to 9 million, from 7.5 million, and its third-quarter projection to 5 million, from 3.9 million.

Netflix showed accelerated quarter-over-quarter consumption growth in Q2, based on Comscore OTT measurement, and UBS Lab Google search trends analysis “suggests strong interest for new seasons of recurring titles, particularly local language content,” Sheridan said. For Q3, UBS will look for management’s commentary about Netflix’s upcoming title slate, featuring returning series and movie sequels, he added.

MoffettNathanson is now projecting that Netflix will add 1.75 million subscribers in the U.S. and 7.9 million internationally in Q2, and by year’s end will have added 5.7 million domestically and nearly 30 million internationally.

Wedbush Securities is even more bullish, predicting net subscriber additions of nearly 15 million for the quarter, which would fall just short of Netflix’s record-breaking Q1 adds.

On average, analysts are estimating that Netflix will report $6.08 billion in Q2 revenue — up nearly 24% year-over-year — and earnings per share of $1.84, up from 60 cents year-over-year.

“Thanks to the huge influx of subscribers, Netflix's stock has been one of the best performers in the S&P 500 this year, with a 60% gain so far to $526.51 in mid-day trading Wednesday," reports Fortune. “The rise has propelled Netflix's market cap to $230 billion, exceeding that of even entertainment giant Disney, which has a market value of $218 billion.”

At the same time, the raised expectations put pressure on Netflix to retain the new subscriber levels, which means offering sufficient new content despite the movie and TV show production shutdowns that have affected the U.S. and some other regions.

While Netflix has said it has enough new content to take it into next year, "We think the likely giant spike in new subscribers increases pressure on Netflix for retention," observed Wedbush. "More consumption of content suggests even greater need to replace content with something new."

Wedbush expects Netflix's spending on new content to increase to 2019 levels by next year.

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