After its recent drop, what’s next for Netflix Stock?
netflix (NFLX 2.83%) is expected to report its results for the second quarter of fiscal 2022 after markets close on Tuesday, July 19.
Investors will focus on Netflix’s subscriber numbers when it releases second-quarter results. The company told investors to expect a loss of 2 million subscribers for the second quarter. If it brings in better-than-expected subscriber counts, that could be the catalyst driving the stock higher. Let’s see what other investors should watch out for in Netflix’s second-quarter financial results.
Subscriber growth will take center stage for Netflix in Q2
Netflix flourished at the start of the pandemic as demand for home entertainment soared. The trend is turning and Netflix is struggling to hold people’s attention. The company lost 200,000 subscribers in the first quarter, which ended March 31. It forecast a loss of 2 million more in the second quarter. The losses are not due solely to the economic reopening.
Several competitors have launched streaming services during the pandemic that are typically priced lower than a Netflix subscription. The combination of lower prices and new content perspectives attracts consumers to the new services. To counter this competition, Netflix has acquiesced to longstanding calls from shareholders to add an ad-supported tier of service at a lower price. Investors will want to look for what management has to say about the progress being made in developing the ad-supported version. Initial expectations were that the service could be operational by the end of this year.
Lower prices could attract more subscribers who were hesitant to join Netflix. This may be especially true for low-income consumers. However, Netflix must be careful not to cannibalize its own customers. A lower-priced ad-supported tier could entice current customers to pay for the higher-priced tier. Careful consideration should be given to calculating the amount of ad revenue per user that could be earned to offset the lower subscription price. Needless to say, this will not be an easy task.
The good news for shareholders is that Netflix is comfortably profitable. The company generated net income of $1.6 billion in its most recent quarter on revenue of $7.9 billion. This gives the business a margin of safety to experiment with the incremental impacts of change.
What this could mean for Netflix investors
Wall Street analysts expect Netflix to post revenue of $8.05 billion and earnings per share (EPS) of $2.97. If the company meets these targets, it would be increases of 9.60% and 0%, respectively, compared to the same period last year. Still, subscriber numbers and forecasts are expected to take center stage and have a significant impact on Netflix’s share price following the earnings release.
Netflix is trading at a price-earnings ratio of 16.7, close to a five-year low. Any sign of recovery from subscriber losses or optimism from management about longer-term subscriber growth could send the stock higher.