Netflix viewers rank the coming-of-age series “Never Have I Ever” high on the service’s most-popular list. The cast of the comedy-drama includes Ramona Young, Lee Rodriguez, and Maitreyi Ramakrishnan.
Isabella B. Vosmikova/ NETFLIX
Netflix will have all eyes on its outlook for subscriber growth when the video streaming service reports June-quarter financial results on Tuesday.
The company added 36.6 million subscribers in 2020, boosting the total to more than 200 million, as consumers in Covid-19 lockdown looked to entertain themselves.
But investors are worried about a slowdown because of a combination of less content as a result of limited new production during the pandemic, a “pull forward” effect from last year’s huge growth and a recent price hike in some markets.
In the March quarter, Netflix (ticker: NFLX) added 4 million net new subscribers, 2 million less than originally expected—and projected just 1 million net adds for the June quarter. The company is set to report the June-quarter results after Tuesday’s closing bell.
Netflix’s other guidance for the June quarter calls for revenue of $7.3 billion and profits of $3.16 a share, with the Street estimates about in line with the company’s projections. The Street sees 1.1 million net adds.
For the September quarter, the Street sees $7.48 billion in revenue, with profits falling to $2.17 a share, as production resumes and costs rebound. The Street sees third-quarter net subscriber adds of 5.6 million—the one number that is most likely to move the stock when the report lands.
One other wild card would be any discussion of the company’s much-discussed but so far unannounced plans to enter the streaming videogame market.
In an earnings preview note, Evercore analyst Mark Mahaney writes that he fears the Street’s outlook on subscriber growth for the September quarter may be too aggressive, given “a somewhat soft content slate,” as well as competitive launches from Disney and HBO in some international markets. Still, he keeps his Outperform rating and $655 target price.
Likewise, Morgan Stanley analyst Benjamin Swinburne writes that a combination of the reopening consumer economy and the lingering effects of 2020 production delays “suggests risk” to both second-quarter results and third-quarter guidance. He’s projecting 4 million net adds for the September quarter, well below the Street consensus—the stock will almost certainly sell off if he’s right. But he notes that “more content is on the way,” and that the company should see an acceleration in subscriber growth in the fourth quarter and beyond. He keeps his Overweight rating and $650 target price.
BofA Global Research analyst Nat Schindler writes that the June-quarter results will likely be “irrelevant,” with investors more focused on guidance generally, and subscriber growth in particular. But he adds that “big content launches” in the second half, like a new season of Netflix’s smash sci-fi series “Stranger Things,” should drive subscriber growth over the next year. Schindler keeps his Buy rating and $680 target price.
Netflix shares were off 0.4%, to $528.46, in afternoon trading Monday, part of a broad selloff tied to a spike in Covid-19 cases.
Write to Eric J. Savitz at [email protected]
