Netflix (NASDAQ:NFLX) is scheduled to disclose its fiscal second-quarter earnings on Tuesday, following market close, as the company continues to face inflationary pressures, increased competition, and a rise in subscriber churn.
Here are the Wall Street expectations, according to the Bloomberg consensus:
- Forecasted revenue: $8.05 billion
- Expected adjusted earnings per share (EPS) of $2.99
- Subscribers: Expected loss of 2 million users
The streaming giant’s anticipated loss of 2 million paying users during the second quarter would be the most significant quarterly decline in the company’s history. In April, Netflix (NASDAQ:NFLX) reported an unexpected loss of 200,000 subscribers during the first quarter.
As a result, shares of Paramount Global (NASDAQ:PARA) and Fox Corporation (NASDAQ:FOXA) were downgraded by Morgan Stanley (NYSE:MS). On Monday, Morgan Stanley (NYSE:MS) issued a warning that a “streaming recession” could be on the horizon and downgraded shares of both Paramount Global (NASDAQ:PARA) as well as Fox Corporation (NASDAQ:FOXA).
Analyst Benjamin Swinburne said in the note that they are lowering net adds expectations across the board to reflect rising churn risk from consumers trimming their streaming portfolios in a more difficult economic environment. He added that recession resilience could also have a negative effect on EBITA as advertisers pull back in the face of economic uncertainty, with Morgan Stanley reducing its advertising estimates “across the board.”
“A potential recession creates a risk to advertising estimates, which may be exacerbated by Disney and Netflix (NASDAQ:NFLX) adding advertising inventory as ad budgets come under more pressure,” the analyst mentioned. Wall Street remains optimistic, however, that an ad-supported tier could be the solution to at least some of Netflix’s issues and will be seeking better clarity on the rollout in the company’s Q2 earnings call.
The platform, which revealed last week that it has teamed up with Microsoft (NASDAQ:MSFT) to help launch the new ad-supported tier, expects the offering to launch later this year (although some analysts disagree due to Microsoft’s lack of experience in the third-party ad tech industry).
Additionally, on Tuesday, keep an eye out for any indications of potential peak subscriber penetration in the United States and Canada, including increased pressures from the foreign exchange as the dollar remains incredibly strong compared to other currencies. Bank of America announced that it expects foreign exchange (FX) to creep further into the discourse, estimating that Netflix (NASDAQ:NFLX) could see about $267 million of FX headwinds to revenues in the second quarter.
Netflix’s ‘Stranger Things’ — A Shining Light in Q2?
According to employee sources cited by Bloomberg, the fourth season of “Stranger Things” could be the lone bright spot for the quarter, as its premiere performance surpassed Netflix’s expectations.
In addition to breaking the record for Netflix’s largest ever premiere weekend, the Duffer Brothers’ production obtained the highest number of viewers among all English-language Netflix (NASDAQ:NFLX) seasons during its first 28 days, with 930.3 million hours viewed. Netflix (NASDAQ:NFLX) has a pattern of outperforming after the release of major blockbuster films, indicating that the loss of subscribers may not be as dire as previously anticipated. Despite this, third-party data indicates a rise in churn and cancellations, as well as a larger decline in app downloads.
The key question, however, is whether “Stranger Things” will be enough to offset the predicted decline in Netflix (NASDAQ:NFLX) subscribers. Netflix (NASDAQ:NFLX) stated that it expects 2 million paying users to leave the platform in the second quarter. And if that were to occur, it would be the largest quarterly decline in Netflix’s history. Existing third-party data indicate a negative outlook. We are observing an increase in cancellations, churn, and a decrease in app downloads.
The Netflix (NASDAQ:NFLX) stock price, which is currently around $198 per share, has fallen approximately 70% year-to-date.
Featured Image: DepositPhotos © jordache
