Netflix investors brace for subscriber losses as company focuses on solutions

Jakub Porzycki | Nurfoto | fake images

Netflix reports its second-quarter earnings on Tuesday, and the lead-up feels like a buildup to a hurricane. A storm is coming. It’s probably going to be bad. Shareholders pray that the foundations are strong enough to withstand the damage.

Netflix remains the world’s biggest streaming service, but the company reported its first quarterly subscriber loss in more than a decade earlier this year and warned it expects to lose 2 million global subscribers in the second quarter. That would be the largest quarterly loss in company history.

Losses may be even worse than projected. Macroeconomic trends are worrying. Concerns about a potential recession and runaway inflation may already be slowing spending in the US. Netflix’s standard US plan is $15.49 a month, making it more expensive than all other services. main transmission. That could make it the first option people cancel when looking to save money.

Competition also continues to increase. By the end of the year, HBO Max is likely to add the entire slate of Discovery+ content to its service, which costs $14.99 a month or $9.99 with ads. Last week, Disney increased the price of ESPN+ by $3 a month to $9.99, but kept its Disney+, Hulu and ESPN+ bundle deal the same at $13.99 a month. That may lead to more customers for the Disney bundle, another potential alternative to Netflix.

“I do not know if [this quarter] It’s going to be bad, but it’s not going to be a good story,” said Andrew Rosen, a former Viacom digital media executive and founder of streaming newsletter PARQOR.

In early 2022, many analysts predicted that Netflix would add more than 20 million new subscribers this year. As recently as April, JP Morgan analyst Doug Anmuth estimated the company would add 17.95 million in 2022. After last quarter’s bombshell, he lowered his prediction for the full year to around 4 million.

The big question about how Netflix stock will perform after the results are announced will be how much of the bad news has already been factored into the stock price. Netflix’s market valuation has already gone from $300 billion to less than $90 billion in less than a year.

“For now, I think the markets will be focused on the underwriters,” Yung-Yu Ma, chief investment strategist at BMO Wealth Management, told CNBC on Monday. “I think there’s a wide range of possible outcomes in terms of how much deterioration they actually see and how far into the future that goes.”

weathering the storm

As last quarter’s earnings conference call was drawing to a close, Netflix CFO Spencer Neumann stepped in to assure investors that positive growth would follow in both the third and fourth quarters.

Neumann said the projected loss of 2 million subscribers in the second quarter did not mean the losses would continue: “We will grow revenue. And there will be paid net addition growth,” he said.

A still from the third season of “Stranger Things,” with the Hawkins team on the cusp of adulthood and facing enemies old and new.

Netflix

Netflix is ​​counting on a stronger content slate, including a new season of “The Crown” and the nearly $200 million-budget action flick “The Gray Man,” starring Ryan Gosling and Chris Evans, to accelerate growth. . It will have to “overdeliver” in international regions — Latin America, Asia Pacific and its Europe-Middle East-Africa unit — to account for growing headwinds in the US and Canada, Rosen said.

Netflix also has a lot going for it that other streamers don’t. Mainly, it makes money, and all signs suggest that won’t change anytime soon. Most analysts forecast net income of nearly $5 billion this year. NBCUniversal’s Peacock, by contrast, will lose $2.5 billion this year. Even Disney, which has already added nearly 140 million Disney+ subscribers worldwide since its launch in late 2019, lost $887 million from its streaming products last quarter.

And with 222 million subscribers worldwide, at least before the official losses announced Tuesday, Netflix remains the largest streaming service on the planet. That’s a huge draw for any creator who wants to create content for the largest possible audience. It’s also an important carrot for advertisers, who will finally be able to tap into Netflix’s audience later this year, when the company launches an ad-supported subscription option for the first time.

Netflix also plans to crack down on password sharing around the world, a process that could add tens of millions of new subscribers over time. Netflix estimates that more than 100 million households worldwide do not pay for Netflix, with more than 30 million of them in the US and Canada.

But longer-term efforts are yet to show, and the main theme of Tuesday’s results may simply be damage control.

Shares of Netflix rose 1% on Monday to $190.92 and are down more than 68% so far this year.

WATCH: Netflix investors are still short-term focused on subscribers, says BMO’s Yung-Yu Ma

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