Netflix lookahead: What to expect from the streaming giant’s earnings
Netflix is leading the charge in a busy schedule of US earnings today, reporting first-quarter figures after the bell.
The Silicon Valley streaming giant, which now has more than 200m subscribers, has cashed in on higher demand for at-home entertainment during the pandemic.
With most lockdown measures still in place in the first three months of the year, the streamer will be hoping to maintain momentum.
Analysts forecast a further 6m additional subscribers over the period. Net revenue is expected to come in at $7.1bn (£5bn), while earnings per share could be up to $2.98.
Filling the coffers
Netflix has been gradually ramping up its spend on original content such as The Crown and The Queen’s Gambit as it looks to draw in new subscribers.
But the company could break even on its cashflow in the first quarter thanks to lower production costs during the pandemic. This could pave the way for share buybacks, with Netflix recently announcing that it no longer needs to raise cash for its day-to-day operations.
“Netflix is at a different phase of growth compared to other streamers,” says media analyst Paolo Pescatore.
“The year ahead will be pivotal in being more self-sufficient than dependent on other financial sources. It will be many years before many other streaming services turn a profit — all are placing huge bets and will be loss leaders for years.”
Content remains king
However, competition is continuing to heat up from rivals in the streaming market. Disney Plus recently revealed it had smashed through the 100m subscriber mark in just 16 months — it took Netflix a decade to hit the same milestone.
This means Netflix may need to spend even more to secure new programming in the coming months, especially as lockdown measures begin to ease.
“Content remains king. Netflix needs to continue to produce the goods to remain the number one — primus inter pares — streaming app among households (the last to be ditched if cloth needs to be cut),” says Neil Wilson at Markets.com.
“Long term it remains a structural winner and the accelerated gains from the pandemic should now be discounted.”
The company recently lifted its prices and has threatened a crackdown on password sharing, so investors could be looking for further signs of this.
Ipek Ozkardeskaya, senior analyst at Swissquote, says: “The arrival of spring and business reopening are major risks for Netflix revenues, combined with higher subscription fees and tougher competitive environment in on-demand video streaming industry.”
Tom Johnson, chief transformation officer at Mindshare Worldwide, suggests Netflix could look at new revenue lines to counteract the challenges, building on the data from its vast subscriber base.
“Amazon uses its consumer data to inform its entire ecosystem. You would think that at some point Netflix could take a similar portfolio approach,” he says. “Gaming and audio seem like two areas where there would be a strong affinity.”
Market mover
While shares in Netflix have had an overall positive trajectory they have largely remained within a broad consolidation range between $470 and $570, according to Matt Weller, global head of market research at Forex.com.
“If the company is able to exceed analyst expectations for its results and issue optimistic guidance for the rest of the year, the stock could finally break out of its prolonged consolidation range to new record highs and potentially make a run at the $600 level,” he says.
“On the other hand, a weaker-than-anticipated earnings report could drive shares back down toward the aforementioned 200-day EMA [Exponential Moving Average] near $500.”