Netflix price hike will again weigh on earnings
Has Netflix set expectations too low for its third quarter earnings, due out after the market closes today?
Wall Street is divided.
A drop of 1% in Netflix (NFLX) shares Monday, to $100.15, suggests investors are wary.
After the Los Gatos, Calif.-based streaming video provider said in July it had added about 1.7 million new subscribers between April to June — its lowest growth in two years — shares fell 13% to $85.84. The stock price has rebounded to the $100 mark since then.
Weighing on subscriber growth is the continued rollout of a $2 monthly increase to Netflix's most popular subscription plan. The company announced the increase to $9.99 more than two years ago, but let longtime customers pay at the lower price for two years.
Here's what to watch for in Netflix's earnings report:
SUBSCRIBER GROWTH: Again, Netflix has predicted tepid growth of about 300,000 new U.S. subscribers and 2 million international subscribers during the July-September quarter, which would bring its paying base of streaming subscribers to 82.4 million worldwide. But that would amount to the third-smallest growth in the company's last ten quarters.
Challenges noted by CEO Reed Hastings included viewer attention being drawn to the Olympics and the continued price increase rollout. But some analysts expect Netflix to slightly surpass its own guidance. Nomura Global Markets Research analyst Anthony DiClemente, who has a $110 target price for Netflix shares, expects new U.S. subscriber additions of 350,000, he said in a note to investors last week.
Meanwhile, Michael Nathanson of MoffettNathanson Research expects higher totals in U.S. additions (460,000), as well as international additions (2.1 million). MoffettNathanson maintained a Neutral recommendation with an $82 target price in its Friday note to investors.
EARNINGS FORECAST: For the third quarter, Netflix said it expected earnings of 5 cents, compared to 7 cents in the July-September period a year ago, with net income of $22 million, compared to $29 million a year ago. That's in line with the consensus of 5 cents and $22.3 million from analysts polled by S&P Global Intelligence. A slightly better performance of 7 cents per share is expected by Michael Pachter, managing director, equity research at Wedbush Securities.
REVENUE FORECAST: Analysts expect Netflix total revenue of $2.28 billion, up 31%. The company’s total streaming revenue forecast targets a 36% increase to $2.16 billion. Here again, Pachter expects Netflix to beat expectations with revenue of $2.3 billion, he said in a note to investors Thursday.
New Netflix hits such as Stranger Things and Luke Cage, as well as the second season of Narcos, "limited churn," he said, "and helped to drive subscriber retention and offset some of the negative impact from delayed price increases."
Follow Mike Snider on Twitter: @MikeSnider