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Netflix (NFLX) Earnings On Deck: Will Q3 Show Promise?

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Netflix (NFLX - Free Report) is set to report its third quarter results on Tuesday October 15th. The FAANG stock is coming off a less than spectacular second quarter where subscriber growth fell short of Wall Street’s expectations. The streaming giant has had a rough couple months since then, and shares are only up roughly 6% year-to-date after being up over 40% through July.

Wall Street wants to see spectacular growth for the streaming company this quarter, but will Netflix deliver? Let’s take a closer look at how the streaming company might perform in Q3.

Overview

In Q2, Netflix delivered quarterly earnings of $0.60 per share, beating our estimate by 7.14%, but revenue of $4.9 billion lagged behind our estimate. The metric that sent the stock spiraling down was its reported 2.7 million net new paying subscribers, which was well below the 5 million additions the company expected.

Management said that subscriber growth came in below expectations across all geographic segments, but that they didn’t contribute the slow growth to the emergence of competition in the streaming market. The official explanation is that the second-quarter slate of original content failed to inspire strong growth.

Company Outlook

Our consensus estimates for Q3 project Netflix to see earnings growth of 17.98% to $1.05 per share on the back of a 31.34% top line surge to $5.25 billion. Domestic streaming revenue is expected to climb 24.3% to $2.41 billion and international streaming revenue is anticipated to grow 40.6% to $2.77 billion. Domestic DVD sales are forecasted to fall 18.5% to $72.4 million. The company is expected to continue growing in terms of revenue, but one metric analysts will be looking at carefully is subscriber growth.

Our Key Company Metric estimates forecast domestic net subscription additions to fall 26.4% year over year to 802,400. International net subscription additions is forecasted to hit 6.19 million for a 5.49% Y/Y climb. Domestic subscriptions at the end of the period is expected to reach 62.5 million, jumping 6.89%, and international subscriptions at the end of the period is projected to be 103.2 million, which is 31.2% higher than the year ago quarter.

Looking ahead to the company’s full fiscal 2019 figures, consensus estimates forecast the firm to generate $20.22 billion in revenue for a 28% spike and for earnings to come in at $3.25 per share for a 21.27% rally.

Bottom Line

Netflix expects the additions of shows like Stranger Things and Orange is the New Black to be the main catalysts for growth in the third quarter. Netflix has a history of coming back with a strong performance after a sorrowful Q2 as it did in 2016 and 2018. However, investors are wary about rising competition from the likes of Disney (DIS - Free Report) and Apple (AAPL - Free Report) . Estimate revisions have trended higher for Q3 but have trended lower for Q4 and fiscal 2019, which gives the stock a Zacks Rank #4 (Sell).

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