Streaming giant Netflix (NFLX) will report second quarter fiscal 2018 earnings results after the closing bell Monday.
For the quarter that ended June, Wall Street expects Netflix to earn 79 cents per share on revenue of $3.94 billion. This compares to the year-ago quarter when earning were 15 cents per share on $2.79 billion in revenue. For the full year, ending December, earnings are projected to rise 128% to $2.85 per share, while full-year revenue of $16.09 billion would mark an increase of 37.6% year over year.
Beyond the top- and bottom line numbers, the company’s subscriber growth totals will be the key metric driving the share price. “The debate from here centers on Netflix’s ability to drive the kind of adoption rate and returns globally it has built in the US,” wrote Morgan Stanley analyst Benjamin Swinburne in a note published Thursday. Adding, “The company's US success points to a greater international opportunity ahead.”
Expectations are high in terms of subscriber additions. Second-quarter total subscriber net additions are expected to reach 6.2 million, of which 1.2 million is expected to come from the U.S., while 5.1 million internationally. And options trader are betting for a double-digit move in Netflix stock (up or down) based on its subs numbers. Meanwhile, raising their Netflix price target to $430 from $375 last week, analysts at Cowen & Co. are even more bullish on this quarter's subscriber growth projections.
Citing a survey of 2,500 Millennials, Cowen said Netflix accounts for 40% of the U.S. streaming market among the 18 to 24-year old demographic, ahead of Google’s (GOOG , GOOGL) YouTube which came in at 23% and Amazon’s (AMZN) Prime Video. The fact that U.S. consumers are using Netflix to watch video content more than any other platform is not news, however.
“Netflix has dominated domestically for years. That’s how it has gotten where it has,” said Daniel Ives, head of technology research at GBH Insights, according to MarketWatch. It's for this reason the company’s growth in international markets this quarter (and going forward) is now even more important. Cowen expects Netflix’s international user base to grow to 255.2 million subscribers in the next 10 years, rising from 83.6 million at the end of 2018, representing growth of 205% (20% annually).
In other words, while Netflix may begin to see slower U.S. sub growth, the notion of “peak subscriber” won’t (or shouldn’t) enter the conversation, given the opportunity it still has internationally. And the fact that its Q2 profits are expected to grow at over 400% underscores not only the company’s pricing power, but also how sticky the product has become for consumers both domestic and abroad. And until there are clearer signs of slowing growth, staying long Netflix stock remains the best strategy.