Netflix’s share price: what to expect in Q2 earnings

Netflix’s [NFLX] share price has gone from strength to strength in the first half of 2020. Following a brief sell-off at the end of February, the stock has been sitting above the $500 level since 8 July. Bumper subscriber numbers have been driving these gains, as people look for things to do in lockdown. With subscriber numbers tipped to jump above estimates, a number of bullish analysts believe Netflix’s share price has room to grow further yet.

So, will Netflix’s share price beat expectations following Q2 results? And what else should shareholders be watching out for?

What’s happening with Netflix’s share price?

Netflix’s share price soared to a new high on Friday 10 July, hitting $555 before closing slightly lower at $548, comfortably the stock’s highest close to date. The shares climbed higher still on Monday, to $575, before retreating to $525 ahead of Thursday 16 July’s Q2 results. So far this year, Netflix’s share price is up by 40%, leaping 7.5% on 10 July alone. The question is now whether Netflix’s share price can continue pushing on to new all-time highs.

When is Netflix reporting Q2 earnings?

16 July

How could Q2 earnings impact Netflix’s share price?

Price target hike boosts Netflix’s share price

Netflix’s share price was boosted at the tail end of last week by a Goldman Sachs update.  Analyst Heath Terry bumped the price target from $540 to $670, a fresh high among Wall Street analysts, and confirmed Goldman Sachs’ buy rating on the stock.

Terry’s bullish update stems from his belief that Netflix will report record quarterly app downloads in Q2, “driven by growth in content on the platform, a lack of competition for entertainment hours and more time being spent at home even as a number of official orders have been lifted."

Looking beyond Q2, Terry offered further positive news for Netflix investors, arguing that “consensus estimates for the H2 and beyond remain too low."

Netflix’s share price tipped to hit $600

Although Netflix slipped in trading on Monday, head of technical analysis at Oppenheimer, Ari Wald, is unperturbed, claiming last week that Netflix “is really just two months into a two-year breakout … we see runway for additional upside. Overall this is a breakout to stick with and buy more on pullbacks. We think Netflix is going higher.”

Wald went on to say that a move to the $600 level “sounds reasonable”, which would represent a 14.3% rise in Netflix’ s share price from Tuesday 14 July’s close at $524.88 – and a jump of 31.9% from the start of July.

Investors will be watching the new subscriber and app download figures with interest when results are published after market close on Thursday 16 July.

Netflix share price vitals, Yahoo Finance, 15 July 2020

Will subscribers and revenue soar in Q2?

April’s Q1 numbers saw new subscribers surge to 182.8m globally, a gain of 15.8m — more than double the company’s initial guidance. Revenue improved to $5.77bn, in line with estimates, as Netflix posted its best-ever numbers. Profit fell slightly short of expectations, suggesting a probably rise in costs. The strong US dollar may have also had an impact on profit figures.

For Q2, Netflix’s guidance suggests the addition of around 7 million new subscribers, which would take the global total to 190m. Goldman Sachs, however, believes the figure will far exceed that, predicting that Netflix will report over 12.5 million net subscriber additions in the second quarter. If this happens, Netflix’s share price could soar.

What are the analysts saying?

Earnings are expected to come in at $1.814 a share in the three months to June, a significant 33% year-on-year rise, while Q2 revenue is forecast to rise by almost 20% versus Q2 2019, from $4.92 billion to $6.08 billion.

Is it time to buy Netflix?

Of the 41 analysts tracking the Netflix share price on Yahoo Finance, 25 rate it a Buy, while 14 opt for Hold. In terms of 12-month share price projections, the consensus target is $500, slightly under the current level following last week’s price hike, with a high estimate of $670 – a 27.6% rise on Tuesday 14 July’s price at close.

CMC Markets’ chief market analyst, Michael Hewson, cautions that “Netflix’s biggest problem may be around whether subscribers stick around once restrictions ease. There are also concerns about the content pipeline, which is currently suspended.”

“Netflix’s biggest problem may be around whether subscribers stick around once restrictions ease. There are also concerns about the content pipeline, which is currently suspended” - CMC Markets’ chief market analyst, Michael Hewson

All in all, though, the outlook seems positive for Netflix, as analysts and investors anticipate some strong numbers in Q2 results. Whether Netflix’s share price can continue its recent sharp rise in the short-term is open to question, but the stock appears primed for further gains.