With Muted Expectations For Q2, Will Netflix Surprise?

Netflix (NASDAQ:NFLX) is slated to report its Q2 2022 results on July 19th.  We estimate that Netflix’s revenue will come in at about $8.1 billion for the quarter, marginally ahead of the consensus estimate of about $8.05 billion. This would mark year-over-year growth of about 9%, although it is down from close to 20% growth last year.  We estimate that earnings will stand at close to $3 per share, compared to a consensus of $2.97 per share and roughly flat compared to last year. So what are some of the trends that are likely to drive Netflix results? See our interactive dashboard analysis on Netflix Earnings Preview for more details on how Netflix’s revenues and earnings are likely to trend for the quarter.

Over Q1 2022, Netflix lost about 200,000 subscribers, its first net subscriber loss in almost a decade, and for Q2, which is typically a seasonally weak quarter, Netflix has guided that it could lose another 2 million subscribers. There are multiple trends hurting Netflix. Firstly, the Covid-19-related tailwinds are easing for the company, as people rely less on streaming as a means of entertainment post the lockdowns. At the same time, competition is also getting more intense, with the likes of Apple, Disney, and Paramount gaining a lot of traction with their streaming products. It’s also possible that high levels of inflation are impacting subscriber growth, particularly in lower-income markets, where rising prices could be hurting discretionary spending. That said, there are a couple of factors that could help Netflix through the quarter as well. A lot of big content releases such as season two of the hit show Bridgerton and the company’s original film, The Adam Project, were released only in late March, and it’s possible that they could drive subscriber additions over this quarter. Moreover, the first set of episodes for the new season of Netflix’s flagship show Stranger Things was released in late May.

Now, Netflix stock remains down by almost 70% year-to-date, due to the recent subscriber losses and the broader market rotation out of Covid winners. However, with Netflix stock priced at about $184 per share, it is trading at levels last seen around mid-2017, prior to the global Covid-19 pandemic. However, Netflix has made considerable progress since then. For example, the company has roughly doubled its subscriber base since 2017, despite hiking prices four times over the period, with its churn rates remaining the lowest in the streaming business. The stock now trades at just about 17x projected 2022 consensus earnings and about 15x 2023 consensus, down from levels of over 90x prior to the pandemic.  We remain positive on Netflix stock, with a price estimate of $320 per share, which is meaningfully ahead of the current market price.  See our analysis Netflix Valuation: Expensive or Cheap for more details on what’s driving our price estimate for Netflix. Also, check out on the analysis of Netflix Revenue for more details on how Netflix revenues are trending.

With inflation rising and the Fed raising interest rates, Netflix has fallen 70% this year. Can it drop more? See how low can Netflix stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

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