The Netflix results for the second quarter should be known after the markets close Wednesday, so see what you can expect. It should be noted from the outset that Netflix (NFLX) has beaten Wall Street estimates over the past five quarters. We expect the company to beat estimates this quarter as well. But you must also pay attention to the competition in the large broadcast space.
Wall Street expects net earnings per share of $ 0.56 for the second quarter, down 33.76% from one year to the next. We attribute the weak margin outlook to the company's weak earnings growth. Netflix expects second quarter operating margins to continue to deteriorate as a result of the timing chosen for certain expenses. At the same time, margins should improve in the second half.
Netflix's revenue has fallen in the last four quarters. However, revenues improved sequentially. We expect Netflix revenue to return to growth in the next quarter. Continued growth in the number of subscribers abroad and higher rates should support the recovery.
The company expects revenues of $ 4.9 billion for the second quarter. This figure is up 26.1% from the second quarter of last year. In the first quarter of 2019, the $ 4.52 billion business figure was up 22.2% year-over-year and about 8% sequentially.
According to Todd Juenger analyst Bernstein, Netflix has increased its membership prices in Western Europe, Israel, Argentina and some Latin American markets. The company raised membership prices in the United States from 13% to 18% in January. The increase will likely support revenue in the second quarter.
Low additions paid by subscribers could hurt Netflix's revenues
Despite year-over-year revenue growth, the company expects small increases in subscriber paid payments for the second quarter. Netflix expects net additions paid of 5 million euros, a decrease of 8% from the first quarter.
The expected decline in paid subscriber additions is mainly due to weak US growth and intense competition in the streaming sector. Netflix expects additions of US subscribers to 0.3 million. It also provides for additions of international subscribers of 4.7 million.
The total number of paid subscribers of the company is expected to reach 153.9 million in the second quarter. While US paid subscribers are expected to be around 60.5 million, international subscriptions could reach about 93.3 million.
Increased competition in the space
Netflix may be the king of content, but it faces fierce competition in the streaming space for both established and new players. Amazon Prime, Hulu, AT & T (T) HBO Now and YouTube are popular suppliers.
Competitors in the telecommunications and media sector want to take a share of the growing space. Disney (DIS) and WarnerMedia from AT & T both launch streaming services. In addition, Apple's streaming video product (AAPL) will arrive this fall. Comcast's NBCUniversal (CMCSA) launches its streaming service in early 2020, as does Discovery.
New streaming players could harm Netflix. Apple, Disney and AT & T's WarnerMedia are likely to attract a large number of premium content subscribers.
And it should be noted that user penetration for "video-on-demand" is increasing due to changing consumer preferences. Viewers are still moving from traditional cable to over-the-top offers. The penetration rate of users is expected to reach 9.9% in 2022, compared to 7.5% in 2018.
Competing offers from Apple and AT & T
Apple plans to launch its ad-free streaming service, Apple TV +, in more than 100 countries. But the company did not share the pricing details. Apple TV + will broadcast movies and TV shows from third-party studios alongside original programs.
AT & T's WarnerMedia recently named its streaming service, HBO Max. The service will be rolled out in the spring of 2020. It is planned to offer premium content from HBO as well as TNT and TBS. The service will also host content from Warner Brothers Studios' extensive film and television library. The premium HBO Max content will cost between 16 and 17 USD per month. We will have to see exactly how much HBO max market share can get from Netflix.
Disney + streaming service
Disney + is also likely to reduce Netflix's market share. Disney has an extensive collection of branded TV movies and shows. It also offers original series and programming. His most popular franchises include Disney, Pixar, Marvel, Star warsand National Geographic.
Disney + will cost as little as $ 6.99 a month, while the simplest Netflix package starts at $ 8.99 and the most popular Netflix package costs $ 12.99. Comcast revised its NBCUniversal price from $ 12 to $ 10 a month after Disney unveiled its award.
In addition, Benjamin Swinburne, an analyst at Morgan Stanley, thinks that Disney + could attract more US subscribers than Netflix by 2024. He also thinks that the weak US growth of Netflix will affect its market share. Netflix is expected to gain only 79 million US subscribers by 2024. However, Disney +, Hulu and ESPN + could add up to 95 million.
Netflix to lose popular shows
Apart from its competitors, Netflix's profits could suffer from the loss of some of its issues.
Netflix loses the classic of the 90s friends after HBO Max pulls the series for his own platform. Similarly, NBCUniversal is withdrawn Office for his own service. Would have, Office and friends were the most watched shows on Netflix. In addition, Disney terminated its film license agreement with Netflix to create its own streaming service.
Premium content could generate future revenue for Netflix
In the midst of all this intense competition, Netflix is preparing with high quality original content to attract subscribers and maintain its global reach. His popular science fiction show Strange things released its third season on July 4th. The season attracted 40.7 million "household accounts" from July 8th.
In addition, Netflix has invested more than $ 8 billion in original programming in 2018. The company plans to continue investing in original programming in the second quarter and in 2019. Nevertheless, these investments have resulted in negative free cash flow during many quarters.
In the first quarter of this year, Netflix's free cash flow was approximately $ 460 million, more than its negative $ 287 million cash flow for the first quarter of 2018.
Netflix is forecasting free cash flow for 2019 of $ 3.5 billion. This level would be less than $ 3 billion in 2018 due to increased spending on content and higher cash taxes. If the company continues to spend more on content, its cash flow could be lower than forecast for 2019.
Wall Street recommendations ahead of Netflix results
Netflix shares have returned 39.5% since the beginning of the year as of Friday. Meanwhile, the S & P 500 rose only 20.2%. At the same price, Netflix has a market capitalization of $ 160.1 billion.
Of the 45 analysts covering Netflix shares, 30 have a "buy" rating, while ten have a "hold" rating. Five have a sales rating. Wall Street has a price target of $ 390.54 for NFLX, which implies a premium of 4.6% based on Friday's closing price of $ 373.25.
Wall Street analysts expect EPS growth of about 27.5% and 71.5% for Netflix in 2019 and 2020, respectively. EPS estimated at $ 3.42 and $ 5.86 for the respective periods. Netflix's revenues are expected to grow by 27.8% and 23.8% in 2019 and 2020, respectively.
Stay tuned for further analysis following Wednesday's Netflix results.