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Netflix reviews its second-quarter earnings Tuesday, and the run-up looks like hurricane preparation. A storm is coming. It’s most likely going to be unhealthy. Shareholders are praying the muse is sturdy sufficient to resist the harm.
Netflix stays the world’s largest streaming service, however the firm reported its first quarterly loss in subscribers in additional than a decade earlier this yr and warned that it expects to lose 2 million world subscribers within the second quarter. That could be the one largest quarterly loss within the firm’s historical past.
It’s attainable the losses might be even worse than projected. Macroeconomic traits are worrisome. Concerns of a attainable recession and rampant inflation could already be slowing down spending within the U.S. Netflix’s normal U.S. plan is $15.49 a month, making it pricier than all different main streaming providers. That may make it the primary choice individuals cancel after they look to economize.
Competition additionally continues to ramp up. By the tip of the yr, HBO Max will possible add Discovery+’s total slate of content material to its service, which prices $14.99 a month or $9.99 with advertisements. Disney final week elevated the value on ESPN+ by $3 a month to $9.99, however stored its bundled providing of Disney+, Hulu and ESPN+ the identical at $13.99 a month. That could result in extra prospects for the Disney bundle, one other potential different to Netflix.
“I don’t know if [this quarter] will be bad, but it won’t be a good story,” mentioned Andrew Rosen, a former Viacom digital media govt and founding father of streaming e-newsletter PARQOR.
At the beginning of 2022, many analysts have been predicting Netflix would add greater than 20 million new subscribers this yr. As lately as April, JP Morgan analyst Doug Anmuth estimated the corporate would add 17.95 million in 2022. After final quarter’s bombshell, he lowered his full-year prediction to about 4 million.
The huge query for how Netflix shares carry out after the outcomes are introduced might be how a lot of the unhealthy information has already been baked in to the inventory value. Already, Netflix’s market valuation has gone from $300 billion to below $90 billion in lower than a yr.
“For now, I think the markets are going to focus on subscribers,” Yung-Yu Ma, BMO Wealth Management’s chief funding strategist, instructed CNBC on Monday. “I think there’s a big range of possible outcomes in terms of how much deterioration they actually see and how far that goes into the future.”
Weathering the storm
As final quarter’s earnings convention name was winding down, Netflix Chief Financial Officer Spencer Neumann jumped in to reassure investors optimistic development would are available in each the third and fourth quarters.
Neumann mentioned the projected lack of 2 million subscribers within the second quarter did not imply losses would proceed: “We will grow revenue. And there will be paid net add growth,” he mentioned.
A nonetheless from “Stranger Things” season three, with the Hawkins crew on the cusp of maturity and dealing with enemies outdated and new.
Netflix
Netflix is counting on a stronger slate of content material, together with a brand new season of “The Crown” and the almost $200 million budgeted motion film “The Gray Man,” starring Ryan Gosling and Chris Evans, to speed up development. It might want to “overdeliver” in worldwide areas — Latin America, Asia Pacific and its Europe-Middle East-Africa unit — to account for mounting headwinds within the U.S. and Canada, Rosen mentioned.
Netflix additionally has loads going for it that different streamers do not. Primarily, it makes cash, and all indicators recommend that will not change anytime quickly. Most analysts are predicting web revenue of almost $5 billion this yr. NBCUniversal’s Peacock, against this, is ready to lose $2.5 billion this yr. Even Disney, which has already added almost 140 million Disney+ subscribers around the globe since launching in late 2019, misplaced $887 million from its streaming merchandise final quarter.
And with 222 million subscribers globally — at the least, earlier than any official losses introduced Tuesday — Netflix remains to be the biggest streaming service on the planet. That’s an enormous draw for any creator who needs to make content material for the most important viewers attainable. It’s additionally a big carrot for advertisers, who will lastly be capable of faucet into Netflix’s viewers by year-end, when the corporate launches an ad-supported subscription choice for the primary time.
Netflix additionally plans to crack down on password sharing throughout the globe, a course of that might add tens of hundreds of thousands of latest subscribers over time. Netflix estimates greater than 100 million households globally do not pay for Netflix, with over 30 million of them within the U.S. and Canada.
But longer-term efforts will not present simply but, and the most important theme of Tuesday’s outcomes could merely be harm management.
Netflix shares rose 1% Monday to $190.92 and are off greater than 68% yr up to now.
WATCH: Netflix investors are nonetheless near-term centered on subscribers, says BMO’s Yung-Yu Ma
