Investors will be hoping that the Q2 report generates greater movement for the Netflix share price on Wednesday. However, Netflix’s (NFLX) Q2 results have a tough act to follow, given the company’s impressive first-quarter figures.
In April it released numbers for the first three months of the year: earnings per share came in at $0.76, comfortably topping the $0.57 forecast. Revenue jumped 22.2% to $4.52bn, which was slightly ahead of the consensus estimate. The streaming services company also continued to add new clients at home and abroad. Domestic subscribers increased by 1.74m, while international subscribers jumped by 7.86m, topping forecasts in both cases.
Netflix continues to hold its position as market leader in the streaming sector, with more than 150m members worldwide. The company remains confident it will retain its dominant market position, however increasing competition from Amazon Prime, as well as the release of Apple TV Plus and Disney+, could stop the company from getting too comfortable.
Little movement for Netflix share price
With the exception of a large price jump at the start of this year, the Netflix share price has been trading within a fairly narrow range. A typically volatile investment, Netflix shares have only risen around 3.8% at the time of writing, since its Q1 report. However, there has been plenty going on for the company since its last quarterly results.
Netflix has released several hit shows and films, including the third season of its popular in-house show, Stranger Things. The company recently reported season three pulled in over 40m households since it was released in early July. The publication of its viewing figures is a new addition for the streaming service, and given it operates in a specialised industry, it’s possible this will become a metric of its success as well as a yardstick for competitors to measure themselves against.
A previously announced price increase for US subscribers also took effect in May. The basic monthly plan increased from $7.99 to $8.99, while its standard monthly pricing plan – the most popular tier – rose from $10.99 to $12.99 a month. Several other international markets, including the UK, have seen similar price hikes to their plans. Q2 will be the first quarter where we will see the impact these price increases have had on the company’s average revenue per user (ARPU).
What to expect from Netflix Q2 results
Analysts are expecting GAAP earnings per share of $0.56 which would be largely in line with Netflix’s own take on things from mid-April. Q2 revenues of $4.9bn are predicted, which would be an annual increase of 26%.
Netflix is looking for an addition of around 5m new subscribers worldwide this quarter, which would make it the weakest increase since Q1 2017. However, this figure is likely to be offset by the pretty significant price hike of between 13% and 18% for existing users, which will boost average revenue per client.
Netflix faces competition from Disney and Apple
In addition to the latest Q2 results, there are several things for Netflix investors to keep an eye on over the next few months, in particular the company’s increasing competition. Apple TV Plus launched in early 2019, while Disney plans on launching its own subscription service in November, adding to competition Netflix already faces from Amazon Prime. Disney plans to remove all of its content from the Netflix platform this year, and the company will also see popular shows The Office and Friends leave over the next two years.
However, in a letter sent to its shareholders for the holiday quarter, Netflix reinforced its position as market leader in the streaming sector, stating its focus “is not on Disney+, Amazon or others, but on how we can improve our experience for our members.” Indeed, the company has always placed an emphasis on its original content. The recent success of Stranger Things 3 could be followed later this year by Orange is the New Black 7 and Glow 3.
With Disney’s platform not expected to turn a profit until 2024 and original content predicted to cost more than $1bn from cashflows, it seems unlikely that Netflix will see an exodus of subscribers in the short term. However, the added competition from Disney+ (in particular its lower subscription price of $6.99 a month) and others is likely to pose a long-term challenge for Netflix, adding pressure on the company to hold down its prices while attempting to stay ahead of its late-arriving rivals.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.