Netflix (NFLX) 2nd Quarter Earnings: What to Expect

Large Netflix logo displaying on a tablet atop a slate surface
Credit: Kaspars Grinvalds - stock.adobe.com

Netflix (NFLX) is set to report second quarter fiscal 2020 earnings results after the closing bell Thursday. You would be hard-pressed to find another company not named Zoom (ZM) that is capitalizing more on the “stay-at-home” economy in which we live.

The streaming giant, which has seen its stock surge more than 15% over the past several sessions, has skyrocketed some 75% year to date, crushing all three major averages, including the 20% rise in the Nasdaq. Needless to say, expectations are high for another blowout quarter. Understandably, investors want to know how much more runway Netflix has left. While some have argued the that good news is already priced in, analysts see more upside.

Netflix's price target has been increased as high as $670 in anticipation of strong Q2 subscriber growth. Citing app download data and consumer trends, namely the fact that people are spending significantly more time at home due to the COVID-19 pandemic, Goldman Sachs analyst Heath Terry forecasts Q2 subscriber additions of 12.5 million, which is 66% above Netflix’s own guidance. The company, however, guided for only 7.5 million new subscribers in the just-ended quarter.

What’s more, Netflix is not alone anymore. The company now has competition not only from the existing players such as Amazon (AMZN) and Hulu, but also from new platforms from Disney (DIS) and Apple (AAPL). And when factoring the recent launch of AT&T’s (T) HBO Max and the soon-to-be launched Peacock from Comcast (CMCSA), there are now tons of platforms jockeying for home-bound audiences. These are just some of the key topics the management is certain to address during the conference call with analysts.

For the quarter that ended June, Wall Street expects Netflix to earn $1.81 per share on revenue of $6.08 billion. This compares to the year-ago quarter when earnings were 60 cents per share on $4.92 billion in revenue. For the full year, ending in Decembers, earnings are projected to increase 56% year over year to $6.45 per share, while full-year revenue of $24.8 billion would mark an increase of 23% year over year.

The effects of the coronavirus pandemic, namely shelter-in-place orders, has made Netflix even more an essential part of people’s lives, which was noticeable in the first quarter. The company wowed investors with its worldwide subscriber total reaching 182.9 million at the end of Q1. During which worldwide subscribers surged 23% year over year, with Netflix adding a record 15.77 million, easily passing past the 9.6 million posted a year earlier. Notably, subscriber growth was even the once-stagnant North American market, where subscribers added 2.3 million, up 23%.

The question is, can Netflix perform an encore and surpass its Q1 output? Given the stock’s performance, merely duplicating Q1 would not be enough. Elsewhere, while Netflix’s content has been its biggest asset over competitors, the coronavirus pandemic has halted many film and TV productions, which raises the question, does Netflix have enough programming lined up to maintain its status as the streaming leader? 

In a recent note to investors, Matthew Thornton, analyst at SunTrust Robinson Humphrey, modeled for Netflix to add net new Q2 subscribers between 9 million and 12 million. It remains to be seen if the company can meet these numbers. And even if it does, will investors applaud the outlook for the rest of 2020 and beyond. To find out, you’ll have to tune in Thursday and have your popcorn ready.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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