Netflix (NFLX) is scheduled to report results of its second fiscal quarter after market close on July 17, with a conference call scheduled for 6:00 pm ET. What to watch:
1. SUBSCRIBERS: Netflix's subscriber numbers are a closely-watched measure of the company's growth trajectory. In the first quarter, the company reported streaming paid net additions of 9.6M members, including 1.74M in the U.S. and 7.86M internationally, up 16% year over year. For Q2, Netflix has forecast total paid net adds of 5.0M, down 8% year over year, with 300,000 in the U.S. and 4.7M for the international segment. "This would put us at 14.6M paid net adds for the first half of 2019, up 7% year over year," the company noted with its Q1 report.
2. LOSING FRIENDS, THE OFFICE: On June 26, NBCUniversal announced that it had secured the exclusive domestic streaming rights to "The Office," which will move to the company's upcoming streaming service for five years, beginning in 2021. NBCUniversal's ad-supported streaming service is set to launch in 2020. That day, Netflix said via Twitter: "We're sad that NBC has decided to take The Office back for its own streaming platform - but members can binge watch the show to their hearts' content ad-free on Netflix until January 2021."
On July 9, AT&T's (T) WarnerMedia unveiled HBO Max as the name of its new streaming service, announcing that the new service will include the "best-of-the-best from WarnerMedia's enormous portfolio of beloved brands and libraries." New deals with Warner Bros. Television and others for HBO Max include the exclusive streaming rights at launch to all 236 episodes of "Friends," said the company, which added that HBO Max is scheduled to launch commercially in spring of 2020. Previously, in December 2018, Netflix US said in a tweet: "The Holiday Armadillo has granted your wish: 'Friends' will still be there for you in the US throughout 2019."
On the topic of competition, in its last quarterly letter to investors, Netflix said in part: "Recently, Apple and Disney each unveiled their direct-to-consumer subscription video services. Both companies are world class consumer brands and we're excited to compete; the clear beneficiaries will be content creators and consumers who will reap the rewards of many companies vying to provide a great video experience for audiences. We don't anticipate that these new entrants will materially affect our growth because the transition from linear to on demand entertainment is so massive and because of the differing nature of our content offerings."
3. ORIGINAL CONTENT: On July 9, Cowen analyst John Blackledge wrote in a research note that he expects "solid" results, with Original programming hours up 52% year over year serving as a tailwind. Additionally, the analyst said his firm's latest U.S. survey data suggests about 51% of Netflix users will watch "Stranger Things" Season 3 and many lapsed users may resubscribe, possibly driving gross additions at the end of Q2 and into Q3. The prior night, the official Netflix US Twitter account tweeted: "@Stranger_Things 3 is breaking Netflix records! 40.7 million household accounts have been watching the show since its July 4 global launch - more than any other film or series in its first four days. And 18.2 million have already finished the entire season."
4. PIPER BULLISH: Netflix has "significant room" to grow subscribers based on various ways of slicing the company's total addressable market, Piper Jaffray analyst Michael Olson told investors in a research note published on June 27. The analyst has historically used fixed broadband households as the Netflix addressable market, but he now believes this is "too limiting" given the potential for mobile-first and mobile-only users to adopt the service, especially outside of the U.S. When looking at current Netflix adoption as a percentage of internet or pay-TV households, Olson sees international "significantly" lagging domestic, suggesting potential for "dramatic" international growth in the coming years. While consensus estimates assume a high rate of ongoing international sub growth, "relatively more aggressive scenarios" have a realistic chance of playing out, Olson said. Looking to 2021, the analyst believes investor anticipation around potential for greater than 20% penetration of Netflix across global internet households could lead to a roughly 50% move in the stock over the next 12-18 months. Olson has an Overweight rating on Netflix shares with a $440 price target.
Keywords: earnings, earnings watch, streaming, subs, disney+, apple tv+, HBO Max