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Netflix (NFLX) will report its Q3 earnings on October 16 after the market closes. Currently, the stock is trading at $490, down from yesterday’s close of $520 and below its all-time high of $575.
Netflix has been a major beneficiary of the pandemic, with a substantial increase in subscribers as more people have turned to streaming for entertainment. The company recently announced it added over 10 million international users.
Despite this growth, Netflix faced challenges in Q2. The company saw a 26% increase in revenue and a 53% rise in operating income year-over-year. However, the growth in paid memberships was 2.7 million, falling short of the 5.5 million from the previous year and below the company’s forecast of 5.0 million. The annual average of streaming paid memberships grew by 24%, and the revenue per user increased by 3%. Earnings per share (EPS) came in at $0.60, compared to $0.85 last year, partly due to a $61 million non-cash loss from foreign exchange remeasurement on EUR-denominated debt. Streaming content obligations decreased by 2%, as Netflix shifts towards more owned content. The company also missed forecasts in international regions and faced challenges in markets where prices were increased. Nonetheless, Netflix added 2.8 million international subscribers.
Analysts predict Q3 EPS to be around $1.04, with estimates ranging between $0.98 and $1.15, up from $0.89 a year ago. Revenue expectations for Q3 are $5.25 billion, up from $4 billion. Netflix aims to add 7 million paid memberships in Q3, exceeding last year’s 6.1 million. The company forecasts up to 750,000 new paid subscribers for the quarter.
As Netflix continues to focus on original content, its marketing strategy has shifted to highlight key titles to engage both existing users and potential new subscribers. The company is also investing in owned media to strengthen its relationship with fans and exploring new licensing and brand partnerships to enhance viewer engagement.
Netflix has partnered with AT&T in the US to integrate its service into AT&T’s new set-top box. The company now collaborates with various ISPs and video programming distributors, including Comcast, DISH, Verizon, T-Mobile, Charter, and Altice. Netflix has no plans to introduce ads, aiming to focus solely on viewer satisfaction rather than competing for ad revenue.
With major players like Apple, Disney, WarnerMedia, NBCU, and others entering the streaming market, Netflix faces increased competition. Apple’s streaming service will launch on November 1 at $4.99 a month, while Disney+ will follow at $6.99 a month. Although Netflix has competed well against cheaper services in the past, the entry of well-funded competitors like Apple and Disney could challenge its current pricing strategy.
Over the past year, Netflix’s stock has dropped by 22% and has lost a quarter of its value since its Q2 results in July. This negative sentiment might already be reflected in the stock price.
Technically, the long-term outlook for Netflix is bearish, as the stock trades below all major daily moving averages. Since July 2019, it has been in a descending channel, with the price falling from $365 in mid-July to $253 by late September. Immediate support is at $257, the low from October 3, with further support at $252. Resistance levels are at $282, $291 (the 50-day moving average), and $323 (the 100-day moving average). For a positive shift in momentum, the stock needs to break out of the descending channel and attract more investors.
Overall, while the technical picture for Netflix is currently bleak, the Q3 earnings results could provide a catalyst to reverse the downtrend.