Netflix shares extended their losses another 8% on Friday after the streamer’s second-quarter earnings report was a mixed bag. The company’s results came in roughly in line with Wall Street expectations, but were not enough to quell investors’ concerns about its future growth.
The streamer reported a weaker-than-expected forecast after it narrowed its full year revenue guidance to $51 billion to $51.4 billion, but continues to expect that ads revenue will double year over year to $3 billion. For the third quarter, it anticipates revenue growth of 11.7% to $12.86 billion; net income of $3.45 billion, or 82 cents per share; operating income of $4.3 billion and an operating margin of 33.2%.
Also impacting Netflix’s stock is the company’s decision to pull back on its transparency around engagement data, with its biannual reports moving to annual publication starting in 2027 as it looks to keep investors’ focus on revenue and operating profit. The company noted it would continue to report title-by-title and total view hours data, including its weekly Top 10 lists for movies and series in more than 90 countries.
“Heading into [second-quarter] earnings, Netflix was a battleground stock, pressured by concerns related to slowing engagement, decelerating revenue growth, and the possibility of transformative M&A,” Bank of America analyst Jessica Reif Ehrlich said. “While results were largely in line, they were not strong enough to fundamentally alter the debate.”
Shares, which are trading at $67.92 apiece as of Friday morning, briefly touched a new 52-week low of $65.08 per share during pre-market trading. The stock is down 46% in the past year and 25% year to date.
Ehrlich said that much of the risk associated with a “business in transition” appears to be reflected in Netflix’s shares and believes the current backdrop is supportive of a larger strategic acquisition. However, she argued that the stock “underappreciates the strategic value of a platform reaching more than 300 million subscribers globally and commanding hours of daily engagement in major markets.”
“While these concerns are likely to persist in the near term, Netflix has repeatedly demonstrated an ability to adapt its model, execute against shifting industry dynamics and compound shareholder value over time,” Ehrlich added. “We expect Netflix shares will be fueled by continued positive subscriber and earnings momentum in addition to a long runway for advertising and live opportunities.”
What Does Netflix Count as a View?
Others were more critical. Third Bridge analyst John Conca said that the company’s efforts to boost engagement, such as adding video podcasts, is
“likely to do little” to overcome Wall Street’s fears despite Netflix touting a 2% year over year increase in engagement.
“While it is certainly possible that these creator-driven formats are truly capturing net-new screen time on top of a larger base, the fact we do not see the lift to reported view hours per member shows that these content types are unlikely to prove to be a needle mover in driving engagement and ultimately subscription value,” Conca said. “Heading into the back half of the year, Netflix’s short-term pricing power will remain contingent on its ability to deliver genuine hits rather than peripheral content experiments.”
He argued that the ad-supported tier’s monetization needs to undergo a “massive, near-term acceleration” to offset the maturity in the business.
“Until the ad business can scale to a point where [average revenue per member] legitimately narrows the gap with standard tiers, the company remains highly exposed to standard market saturation pressures, especially as UGC platforms like YouTube and TikTok continue to take audience share,” he warned.
Conca also didn’t rule out Netflix looking at NBCUniversal as the “logical next M&A partner” after its spun off from Comcast over the next 12 months.
“While there is baggage given NBCU’s linear exposure, the TF1 deal may be the blueprint to modernizing and integrating broadcast programming directly into its platform,” he said. “NBCU would give them way greater exposure to premium sports inventory as well as a similarly strong studio library that WBD would have provided them.”
MoffettNathanson analyst Robert Fishman said that Netflix can turn the tide with Wall Street by delivering continued double-digit revenue growth and leaning into leveraging the power of its leading global scale.
He expects that to come from an increase in international subscribers, the full impact of its recent price increases, a ramp up in advertising in the second half of the year and more live content. He also proposed more licensing partnerships, potential bundles with other streaming services, or even the creation of a streaming channel store.
“Importantly, we believe Netflix can pursue all these initiatives without necessitating a meaningful acceleration in total cost growth, instead maintaining a steady pace of margin expansion and high [free cash flow] conversion that can be used to drive shareholder returns,” Fishman said.
Though the firm remains confident in its own Netflix forecast of 11% revenue growth in 2027, Fishman said “investors will likely need to see the [fourth-quarter] acceleration before giving the company any credit in the multiple.”
