Reports Q2 2021 results on Tuesday 20 July after market close
Expected Revenue: $7.32 Billion
EPS forecast: $3.1
There is consensus among Wall Street analysts that streaming entertainment giant Netflix (NASDAQ:) won't have much to impress the markets when it releases its second quarter results tomorrow.
The major boom during the home environment of the past year, fueled by pandemic-related lockdowns, which pushed the company's subscriber base to more than 200 million in more than 190 countries, is already over. Indeed, during the , the Los Gatos, California-based company added just 3.98 million subscribers, compared to an average analyst estimate of 6.29 million and its own forecast of 6 million. That was the weakest start to a year since 2013, when Netflix added about 3 million customers, according to Bloomberg data.
If the company's prediction of adding just one million subscribers holds for the period ending June 30, it will be the worst three months for Netflix since the early days of its streaming service.
In the short term, that sudden turnaround in growth has a negative effect on the company's stock price. After a gain of more than 60% in 2020, the share has barely increased this year. It is down 2% for the year, closing at $530.31 on Friday. Still, this result is hardly a surprise to investors who have been closely following management guidelines since the start of the pandemic. Netflix has been warning for months that growth would slow after customers get out of their COVID-19 restrictions and resume their normal routines.
Unprecedented competition
Nevertheless, if the battle in the post-pandemic world is to prevent subscribers from canceling their subscription, then it is clear that Netflix remains well positioned to win this race. According to the company's quarterly letter to shareholders, the cancellation rate, or the number of subscribers who left the app, was lower than a year ago, even after the service increased the subscription price. video streaming market where rivals such as Disney+ (NYSE:), HBO Max (NYSE:) and Peacock (NASDAQ:) compete with other entrenched providers such as Amazon (NASDAQ:) for market share.
As the pandemic gradually eases, Netflix plans to produce more shows after a year of production drought. The company aims to spend $17 billion in cash on programming this year, up from $12.5 billion last year and $14.8 billion in 2019. NFLX is prioritizing investments in programming outside the U.S., where most of it is. his new customers live. ]Another positive development long-term investors should be aware of: Netflix no longer relies on debt to fuel its growth. After years of borrowing to fund production, Netflix has said it no longer needs to raise outside funding to support its day-to-day operations. The company plans to reduce debt and will repurchase up to $5 billion in shares.
Bottom Line
Following the "pull-forward" effect of COVID-19, Netflix's subscription growth will continue to slow compared to last year. But the streaming company has emerged from the unique environment of the past year much stronger, solidifying its money and market position. Any weakness in the stock after earnings provides a buying opportunity for long-term investors.
