Topline
Shares of Netflix surged after the closing bell Tuesday despite the streaming giant’s disclosure in its second-quarter earnings report that it lost subscribers for a second quarter in a row, as the total was lower than investors had feared—with the company optimistic about adding back subscribers later in the year.
Key Facts
Netflix’s stock jumped nearly 7% to around $215 per share in after-hours trading, with investors cheering the better-than-expected second-quarter earnings report.
The streaming giant reported that it lost 970,000 subscribers in the latest quarter—significantly less than the company’s previous forecast of losing 2 million subscribers—and management remains optimistic about adding back customers later in the year.
Analyst estimates for Netflix’s second-quarter subscriber loss had ranged from as much as 4 million subscribers to as little as 1.5 million, with some analysts citing the strong performance of season four of Stranger Things, which was Netflix’s most watched English-language show yet.
Investors were hoping for an improvement after a dismal first quarter, when Netflix reported its first subscriber loss in more than a decade (losing 200,000 customers) and shares plunged 35% in one day.
Netflix reported mixed financial results for the second quarter: Earnings came in above Wall Street expectations, though revenue was weaker-than-expected at $7.97 billion versus a consensus analyst forecast of $8.04 billion, according to Refinitiv.
In order to offset recent slowdowns, Netflix is looking to introduce a cheaper ad-supported subscription plan, announcing last week that it will be partnering with Microsoft in order to do so—but Netflix COO Greg Peters said that the project is still in “very early days.”
Crucial Quote:
“There’s very little not to like,” says Charles Lemonides, founder and chief investment officer of ValueWorks. “These results read like the negative news was just a tiny blip in the long-term growth story.” He remains highly bullish on the company, which he argues is still the “strongest streaming platform with the greatest ability to spend dollars on creating new content—and that’s a tough position to compete with.”
Key Background:
Netflix’s stock has cratered roughly 70% this year. Like other tech stocks, Netflix shares were especially hard-hit by concerns over surging inflation and rising rates, but a significant portion of the company’s recent struggles have revolved around slowing subscriber growth, which has spooked investors. Netflix lost 200,000 subscribers globally in the previous quarter—far below the 2.7 million additions expected, which prompted a wave of downgrades from Wall Street analysts at the time.
What To Watch For:
“While a meaningful 2Q or 3Q subscriber beat or miss might temporarily move Netflix shares post-earnings, we expect shares will revert to their trading range as visibility will remain low and the company’s pivot to advertising does not even begin in earnest until late 2022,” Credit Suisse analyst Douglas Mitchelson wrote on Tuesday.
Further Reading:
Netflix Loses Subscribers For The First Time In Ten Years, Shares Plunge 35% (Forbes)
Netflix Stock Crash: Growth Story Is ‘Dunzo For Now’ As Analysts Slash Outlooks (Forbes)
Netflix Partners With Microsoft For Ad-Supported Service Amid Subscriber Losses (Forbes)