Netflix enters the spotlight, kicking off an anxious media earnings season

Netflix will report its second quarter financial results on Tuesday afternoon and the result is likely to set the tone for one of the most anxious and uncertain earnings seasons in years.

According to Guggenheim analyst Michael Morris, the report will have “broad implications for the equity and media ecosystem.”

Netflix Second Quarter Earnings Report: Full coverage of maturity

Last quarter, Netflix issued a performance notice for the second quarter, saying it could lose 2 million subscribers, although it continues at the pace of its streaming business with around 222 million worldwide. Last April, investors reacted strongly to the company’s first loss of subscribers in over a decade, punishing the company’s shares, which had already dropped from an all-time high in 2021. About two-thirds of the company’s market value was lost in the past six months. Wall Street is not only testing the sudden stagnation of subscribers, but also the attractiveness of streaming rivals, not only from former program providers like Disney, Warner and NBCUniversal, but also from wealthy enemies of technology like Apple and Amazon.

Some elements in particular will take center stage while Netflix takes center stage: subscriber narrative, as well as updates on the release of ad-supported cheaper tiers and efforts to limit free password sharing. The last two initiatives were announced by the company last quarter, but the announcement, after years of insistence, has left many observers puzzled, especially given the hasty and dispersed way in which it has been reported. (Co-founder and CEO Reed Hastings threw the bombshell during the company’s earnings video interview, but nothing was written in Netflix’s quarterly letter to shareholders. Last month, co-CEO Ted Sarandos gave a more detailed presentation. Submitted to Cannes Lions and the company has also partnered with Microsoft, which acquired AT&T Xandr’s ad-tech operation in 2021.

Another strategic focus is programming costs. Netflix is ​​aiming for $ 20 billion a year, but its executives have recently signaled some movement towards moderation. Scott Stuber, who heads the company’s film department, said The New York Times In a story released today, the company plans to continue with high-budget films such as gray man, the spy thriller by the Russo brothers, is now in theaters and airs on Friday. “We are not cutting our costs insanely, but we are cutting the volume,” explained Stuber. “We are trying to be more considerate.”

Despite such countermeasures to calm Wall Street concerns, analysts are becoming more optimistic about Netflix’s outlook, though it’s also worth noting that the company’s shares were up about 10% last week ahead of earnings. Wedbush Securities’ Michael Pachter, who has been known to be negative for years, was bullish on the company and now maintains an “external” rating on his shares. In a recent report, Pachter said Netflix’s bulls “hid and the bears raised concerns about the impact of competition.” In his opinion, this combination offers an opportunity.

“We think Netflix is ​​positioned to outperform its second quarter indications,” he wrote, “especially given the unchanged release date. strange things 4, which has a very strong audience “. In other words, Netflix could lose up to 2 million subscribers, Netflix could “overtake” by losing 1 million and this could be considered a win in some circles.

For those non-Baining versions Strange things Y Ozark This helped slow the end of the quarter, Pachter continued, meaning that “Again, Netflix is ​​likely to evolve. We don’t expect big changes to happen quickly; We believe Netflix will only gradually increase prices and launch the its ad-supported option. However, we believe that as the company demonstrates its commitment to scale by launching its new content in the coming weeks, investors will see an increase in net new subscribers and investor confidence in the business model of the company. company will be restored.

Goldman Sachs analyst Eric Sheridan sees no reason for such optimism. He recently downgraded Netflix stock to “sell” and, like many of his peers, sees no change anytime soon. “It is clear that Netflix remains mired in a period of post-pandemic growth normalization, while also seeing more competition in the industry,” he wrote in a recent note to customers.

Michael Nathanson of MoffettNathanson is just as cautious. He maintained a “neutral” rating on the stock, but recently lowered his 12-month price target to $ 35 because he expects the turbulence to continue. “We now expect more pressure on subscriber growth in the second half of the year,” Nathanson wrote in a note to customers, where he also periodically lowered his third and fourth quarter forecasts for adding subscribers by 1 million.

Once Netflix leaves the stage on Tuesday, dozens of other streaming stakeholders will follow suit for the next three to four weeks. All eyes are on Disney, which has added a significant number of streaming subscribers but has also decided not to renew IPL cricket rights, leading some to predict that the company will lower its five-year forecast for Disney +.

Twitter will report quarterly data as it also wages a legal battle with Elon Musk, whose $ 44 billion stake was cut earlier this month. Other tech giants have shown unusual vulnerability so far in 2022, one of the reasons equity markets experienced the worst first half of the year in more than five decades. Amazon is trying to instill confidence under Andy Jass, who replaced CEO Jeff Bezos a year ago, but has chaired a tough time.

The poor visibility of the stream has hurt new competitors such as Paramount and Warner Bros Discovery. Fox Corp., although it has deliberately avoided the consumer subscription space, is grappling with questions about the prospects for television advertising.

Morgan Stanley analyst Ben Swinburne downgraded Paramount to “underweight” (ie to sell) and Fox to “equal weight” (neutral). He cited three main factors: the increasingly laborious economics of streaming; A bleak outlook for mainstream advertising and two major new advertising destinations with Netflix and Disney entering the market; And Apple and Amazon are fighting live sports.

Ask customers a question in the title of their post: “The First Stream Down?” – Swinburne presents a rather difficult picture for the media industry. “The move to streaming has not reduced the risk to media assessments of a slowing economy,” he wrote. “Advertisers and consumers are likely to back down during a recession.”