Netflix Inc (NASDAQ:NFLX) is due to post its financial results for the second quarter today with all eyes on whether the streaming service can stem the heavy subscriber losses reported last time round.
In its last quarterly results in April, the streaming giant estimated it would lose another 2mln subscribers in the subsequent three months. Talk about setting expectations low.
That was after it shocked the market by revealing it had lost 203,000 subscribers in the first financial quarter as customers freely shared passwords to the site among family and friends.
“Today, Netflix will release its latest earnings, and will likely reveal further weakness in subscriptions,” said Ipek Ozkardeskaya, an analyst at investment bank Swissquote.
“If that’s the case, we could see the Netflix shares take another hit. But, because the expectations are low, we could also see a positive surprise this quarter.”
It has become a running joke that Netflix could grow its earnings by 50% if it put an end to password sharing.
Netflix estimates that approximately 100mln households share passwords to its services, which is about half the number of its 222mln paying subscribers.
Last week, Netflix announced it had teamed up with Microsoft to deliver advertising revenue on its streaming television platform.
Will its tie-up with Microsoft in the ad streaming space be enough to curb any inevitable losses from its haemorrhaging subscriber base?
Possibly. However, television advertising is already under pressure and analysts remain cautious.
Netflix said it was partnering with Microsoft on a new ad-supported subscription plan that would add to its pre-existing ad-free range of plans.
“The streaming service is widely expected to have lost subscribers for a second consecutive three-month period,” said AJ Bell financial analyst Danni Hewson.
“The company is looking at changes to its model as it aims to win the market over, including a plan to place adverts on the platform for certain users and clamp down on password sharing.”
Morgan Stanley analyst Benjamin Swinburne said on Monday Netflix was among other streaming and television services “eager to peel away major US sports from the pay-TV bundle”.
He said the company had lowered its expectations for streaming services “to reflect rising churn risk from consumers trimming their streaming portfolios in a more difficult economic environment”.
While Netflix is a new competitor in the ad-supported streaming space, market headwinds could represent crunch time for all streaming service providers seeking to bolster revenues through advertising.
“A potential recession creates risk to advertising estimates which may be exacerbated by Disney and Netflix adding advertising inventory as ad budgets come under more pressure,” Swinborne said.
The average consensus among 32 analysts is that Netflix will post revenue in the range of US$8.04 billion for the recent quarter, which would represent 9.5% growth over the same period of last year.
Earnings per share of approximately US$2.9 for the quarter, just a hair away from the nearly US$2.97 per-share earnings reported a year ago, according to Zachs.
EPS predictions range from US$2.57 to US$3.05, based on 11 estimates.
Netflix has surprised the market on earnings before, with EPS in the March 2022 quarter more than 20% above consensus expectations, but the shares tanked on the disappointing subscriber news.
Netflix will report its second-quarter results at 13:00 Pacific time today (9pm on Tuesday evening in London).