Netflix (NFLX) Q2 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 2021 earnings results after the closing bell Tuesday. The streaming pioneer leads off what will be an important barometer for tech earnings, particularly as the market is trading near all time highs and stock valuations being a major concern. But what does that mean for Netflix?

Despite the emergence of rival streamers such as Disney+ (DIS), HBO Max (T) and Apple TV+ (AAPL), Netflix has figured out ways to maintain its status as the king of streaming. The company has been willing to consistently re-evaluate its market position and approach to remain competitive. One recent example is it negotiated a deal with Sony (SONY) which allows Netflix not only to receive more content sooner than their previous deal, it also also opens the door for both companies to delve into new partnerships.

Netflix has also shown it is willing to depart from its current model of making content available all at once to the more TV-like schedule of weekly deliveries of popular shows. These innovative moves have allowed the company to enjoy strong subscriber increases in international markets. Netflix stock, meanwhile, has responded favorably, rising 10% over the past month, besting the 2.7% rise in the S&P 500 index. But Morgan Stanley analyst Benjamin Swinburne has a slightly different take about what Netflix is likely to produce on Tuesday.

Despite maintaining an Overweight rating on the stock, Swinburne last week highlighted some risks for Netflix’s ability to defend its turf, suggesting that estimates for both Q2 and Q3 might be too bullish. Swinburne sees an increase in net subscribers to come in Q4 and for 2022 as the new content accelerates. As is often the case, how the company guides for the next quarter and full year will answer this important question.

For the quarter that ended June, Wall Street expects Netflix to earn $3.15 per share on revenue of $7.32 billion. This compares to the year-ago quarter when earnings were $1.59 per share on $6.08 billion in revenue. For the full year, ending in December, Netflix’s earnings are projected to increase 73% year over year to $10.54 per share, while full-year revenue of $29.72 billion would mark an increase of 18.9% year over year.

While the market broadly expects the company to maintain its streaming leadership position, Netflix is not alone anymore. That means subscriber growth may not be as robust as in previous quarters. In the first quarter, the company missed its own subscriber guidance, reporting just 4 million global additions (versus its 6 million estimate), which it blamed on a combination of factors such as rising competition and a light content release schedule.

For the just-ended quarter, the company guided to add just 1 million global subscribers. Will the same forces that yielded the underwhelming Q1 sub total impact the company in Q2? But there are other elements of the business that can excite investors, namely how the company is performing from a cash flow and profitability perspective. Both metrics have been on the rise. Analysts will also focus on the flood of content the company has in store for the second half of the year.

With the company’s content spend forecasted at $17 billion this year, it’s still possible that Netflix’s growth metrics will reaccelerate in the second half of the year. Accordingly, staying long Netflix stock makes tons of sense heading into Tuesday.

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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