Will Netflix bounce back?
The streaming giant is set to report its third-quarter financials on Tuesday, looking to rebound from an underwhelming second quarter where it missed both Wall Street and internal estimates for new subscribers.
It marked the first time since early 2017 that Netflix missed on subscriber estimates, with the Los Gatos, California-based company falling 1 million new streamers short of the 6.2 million it had projected. The quarter perfectly summarized where Netflix stands as a public company right now; despite slightly beating earnings and revenue forecasts, Netflix shares have taken since taken a beating, dropping 17 percent since July.
Of course, “bounce back” might be a bit dramatic. Netflix, even after showing it isn’t immune to an underwhelming quarter, has 130 million total subscribers. It’s trading at $336 per share — 62 percent higher than where it started the year — even after a healthy dip. Still, the company rises and falls largely on a single metric, something analysts are well aware of.
“We worry that another second consecutive subscriber miss could impact the narrative about the pace of subscriber growth moving forward,” Evercore analyst Anthony DiClemente recently said in a note to clients that was shared with TheWrap.
DiClemente is optimistic that won’t be the case, though, thanks to a strong slate of new content. Netflix released new seasons of “Ozark” and “Orange is the New Black” during the quarter, and added global hit “Black Panther” to the fold.
As Netflix edges towards a saturation point in the U.S., with 57 million domestic subscribers, the company is increasingly looking for new customers outside the States. DiClemente, using data from analytics firm SensorTower, believes the fresh content has spurred “robust international subscriber growth” during Q3.
“In total, the Netflix app was downloaded more than 40 [million] times from the App Store and Google Play Store in the [third quarter],” DiClemente wrote, marking a 48.5 percent year-over-year growth. “Download activity experienced the most rapid growth in five quarters.”
That trend was especially clear in India. CEO Reed Hastings pointed to the country as a critical market earlier this year, saying greater internet access will drive its “next 100 million” subscribers. Netflix downloads increased 500 percent year-over-year in India, according to Evercore’s data, hitting nearly 5 million downloads for the quarter.
Goldman Sachs analyst Heath Terry made a similar observation in a Monday note to clients that was shared with TheWrap. He said that the “launch of local originals such as ‘Sacred Games’ and ‘Ghoul’ in India accompanied with significant marketing and local partnerships are representative of the potential that these earlier stage, mobile first markets have to drive international subscriber growth.”
Terry, despite cutting his year-long price target on Netflix from $470 to $430, remains bullish on Netflix, projecting the company to add 4.7 million international subscribers, along with another 850,000 in the U.S, eclipsing Netflix’s own forecast of 5 million new users.
From a financial standpoint, Netflix is expected to report earnings of 68 cents per share on $4 billion in revenue, according to Yahoo estimates. The company is spending big on new shows, with $8 billion going towards content in 2018. That figure will increase in 2019. And it’s expected to burn more than $3 billion by the end of the year. But for most investors and analysts, those numbers are ancillary. If Netflix can top 5 million new subscribers on Tuesday, it’s all but guaranteed to enjoy a Wall Street boost. For that to happen, it’s leaning on “Black Panther” and its original content to drive growth outside the U.S.