Netflix Q2 Earnings Preview: Expectations and key factors to watch

Year-to-date, Netflix stock has gained over 52%, and on the stock market today, it climbed 1.4% to close at 450.38. As streaming competition intensifies, investors are closely monitoring the earnings report for indications of future performance.

Here are the estimates from Refinitiv and company forcasts for the Q2 2023 Netflix results:

Netflix has released revenue projections of $8.24 billionfor the second quarter of 2023, a 3.4% increase from the same period in the previous year. However, analysts project higher revenue, with estimates at $8.27 billion, representing a year-over-year growth of 3.8%.

In Q1 2023, Netflix experienced a 3.7% YoY increase in revenue to $8.16 billion.

Netflix has projected a net income of $1.28 billion, or $2.84 per share, for Q2 2023, with an expected operating margin of 19%. This represents a decrease from the operating margin of 19.8% recorded in Q2 2022 and 21% in Q1 2023.

The projected EPS is $2.84, indicating an 11.25% year-over-year decline. In Q1 2023, Netflix reported net income of $1.30 billion, equivalent to $2.88 per share.

According to Media Play News, Wedbush Securities analyst Michael Pachter forecasts that Netflix will announce it has added another 2 million global subscribers between the start of April and the end of June. The number of industry guidance is 1.75 million users.

Netflix added 1.75 million net subscribers in Q1 2023, bringing the total to 232.5 million. Notably, Europe, the Middle East, and Africa had 77.4 million subscribers, while Asia and Latin America combined had 80.7 million, both surpassing the US, which had 74.4 million subscribers by the end of Q1 2023.

For Q2 2023, the streaming giant expects paid net additions to be similar to those in Q1, with a slight year-over-year increase in average revenue per membership (ARM) on an FX-neutral basis.

Members of The Screen Actors Guild - American Federation of Television and Radio Artists (SAG-AFTRA) have joined over 11,000 striking writers in the first industry-wide tandem strike since 1960. Those groups are focused not just on improved pay but on how streaming, such as Netflix, is changing the entertainment business.

Citi analyst Jason Bazinet warns that the last actors' strike in 1980 had a significant impact on box office receipts, falling 45% in 1981 before recovering in 1982 thanks to the release of "E.T.".

Netflix co-CEO Ted Sarandos has expressedconfidencethat the streaming giant is better positioned than its rivals to withstand a work stoppage following the ongoing writers and actors strike. With a deep backlog of completed work and an international focus that goes beyond other streamers, Netflix can continue to produce non-English originals in areas where American unions have no role.

Over a year ago, Netflix founder and former CEO Reed Hastings announced that the company was exploring an ad-supported subscription tier. This year, Netflix shares have rallied 53% on anticipation from Wall Street analysts and investors that the new ads and password crackdown will boost revenue, profits, and subscriber growth.

Since its launch in November 2022, the ad-supported tier has added 5 million active users, with the company aiming to add another 13 million subscribers by Q3 2023. The current pace suggests that this target is still within reach. According to co-CEO Greg Peters, over25%of new signups are choosing the ad-supported tier in countries where it is available.

After announcing its password-sharing crackdown in 2022, citing the practice as a factor behind slowing growth, Netflix has seen a surge in subscriber growth. Analyst Jessica Reif Ehrlich of BofA Securities expects this trend to continue, driving millions of additional subscribers at effectively zero incremental costs.

Bloomberg's Second Measure research unit has also found that new subscriber growth has spiked since Netflix began cracking down on password sharing. According to their data, the new subscriber count grew 236% between May 21 and June 18 of this year, running more than triple the rate of additions compared to the last week before the password policy change.

Morgan Stanley and UBS are the latest to raise their price targets for Netflix stock, with both firms pegging the stock close to the high end of expectations at $450 and $525, respectively. UBS analyst John Hodulik is optimistic about the company's Q2 results, predicting that they will beat the company's guidance targets.

Goldman Sachs has also upgraded its rating on Netflix from Underperform to Neutral, citing positive operating performance and an expectation that business momentum will continue into 2024. They have raised their target to $400.

However, Monness, Crespi, Hardt & Co are less sanguine about the company's outlook. They see headwinds in the form of less-compelling content and the ongoing Hollywood writers' strike, which could cut into results. While they anticipate that Netflix will report in line with the quarter's consensus, they predict that it will fall below the year's consensus.

As analysts remain divided on the streaming giant's prospects, investors will be closely monitoring results and developments in the entertainment industry to gauge Netflix's future performance.