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Earnings Outlook: Can The Witcher And Different Scorching TV Exhibits Get Netflix Up In The Second Half?

A new wave of content could be just what Netflix Inc. needs to revive sales after a pandemic turns into a slump.

Few tech companies thrived more than Netflix
NFLX,
+ 0.37%
in the first 12 months of the COVID-19 pandemic, when consumers were housebound. But when the lockdown continued and the content dried up, rivals Walt Disney Co.
DIS,
-3.55%,
Apple Inc.
AAPL,
-2.69%,
and AT&T Inc.
T,
-1.94%
Gained ground.

The question now is whether Netflix – the market leader with more than 200 million paying subscribers – can maintain its dominance again. Expectations for Tuesday, when the streaming service is due to announce its second quarter results, are subdued, but analysts are looking for more information on when popular series will return later in the year to see signs of a major rebound.

Truist Securities analyst Matthew Thornton expects content to improve in the third quarter with shows like "Fear Street" and "Money Heist" and to pick up speed in the fourth quarter with "Cobra Kai" and "The Witcher". and films like Dwayne Johnson's “Red Notice” before new seasons of “Stranger Things”, “Ozark”, “The Crown” and “Bridgerton” came out in 2022.

"Netflix remains the most widely used service, and we believe its variety of originals supports long-term pricing power," said Justin Patterson, analyst with KeyBanc Capital Markets, in a July 12 investor note.

See also: game on? Netflix hires the first video game manager, signaling a new approach

Netflix will need every part of its content to reverse an expected decline in net paid additions in the first half of the year. Analysts polled by FactSet expect just 1.15 million net additions in the second quarter, up from nearly 4 million in the previous quarter after Netflix predicted it would be the worst quarter for streaming growth in history, while falling short of first-quarter expectations were.

At the time, Netflix executives blamed the slowdown in paid membership growth to "a lighter content plan in the first half of this year due to production delays in COVID-19." Analysts expect the second half to improve – current forecasts, according to FactSet, put 5.5 million new subscribers in the third quarter and 9.64 million in the last three months of the year as fresh new series and films hit consumers bring back troubled by the streaming operation.

To get the pump started, Netflix recently signed content deals with Hollywood legend Steven Spielberg and TV icon Shonda Rhimes, creator / head writer / executive producer of the popular Netflix original series "Bridgerton" and ABC's "Gray & # 39; s Anatomy ”, its spin-off“ Private Practice ”and the political thriller“ Scandal ”.

For more: Netflix signs & # 39; Bridgerton & # 39; producer Shonda Rhimes on an exclusive new deal

Original content sizzles on streaming services trying to compete with Netflix. Disney + triumphantly debuted Black Widow with $ 60 million in streaming revenue on the opening weekend by charging subscribers $ 30 to watch the first Marvel movie to premiere on the streaming service. (The film made $ 80 million in domestic box office sales and $ 78 million internationally.)

AT & T's HBO Max has stepped up the pressure with recent releases like In the Heights. "Space Jam: A New Legacy" is streamed the same day it hits theaters. Apple TV + has signed “Lovecraft Country” creator Misha Green to develop new TV projects. The platform continues to focus on prestige productions such as “Ted Lasso” and “The Morning Show” and has made an agreement with Oscar-winning director Martin Scorsese, the “Killers of the Flower Moon” with Leonardo DiCaprio and Robert De Niro in the Will bring leading roles. to Apple TV +.

What is worth streaming in July: "Ted Lasso", the Olympic Games in Tokyo and more

Amazon.com Inc.
AMZN,
-0.67%,
which bid $ 8.5 billion to acquire the MGM film studio and also signed a contract to offer universal content after being dealt with on Comcast Corp.
CMCSA,
-1.60%
Peacock. Even the beleaguered Peacock, ridiculed for his lack of content, has exclusive rights to the Summer Olympics, the Tour de France and the Premier League.

Netflix could also expand into gaming after hiring former Mike Verdu, a former executive at Facebook Inc.
FB,
-1.23%
and Electronic Arts Inc.
EA,
-1.30%,
as Vice President of Game Development. Netflix is ​​expected to have games available on its streaming service within a year, according to Bloomberg News, but expect executives there to provide a little more information about their plans when they reach out to investors on Tuesday afternoon.

What to Expect

Merits: Analysts, on average, expect Netflix to post earnings of $ 3.18 per share, down from $ 1.59 per share a year ago. Analysts forecast USD 2.70 per share at the end of March.

The contributors to Estimize – a crowdsourcing platform that gathers estimates from Wall Street analysts as well as buy-side analysts, fund managers, corporate executives, academics, and others – are even more optimistic, forecasting average earnings of $ 3.34 per share.

Revenue: Analysts expect an average revenue of 7.32 billion US dollars for the second quarter. Estimated contributors forecast an average of $ 7.37 billion.

Stock movement: Netflix stock is flat so far this year, while the S&P 500 SPX index is up 16%.

What analysts are saying

Like most Netflix analysts, Stifel's Scott Devitt expects a resurgence in the second half of the year after a lack of new content in the first six months of 2021.

"Netflix expects to spend over $ 17 billion in cash content spending in 2021, with spending expected to increase in 2H," said Devitt, who has a buy rating and a price target of $ 560 on the stock, in one Announcement from July 14th. "Our model is to accelerate the growth of net paid subscribers in 2H as the company moves towards a strong content list," with series like "Sex Education" and "The Witcher", as well as movies like "Red Notice" and "Don & # 39." ; t look it up. "

With streaming services opening the taps for productions and Netflix promising more than 70 films this year, analysts like Cowen's John Blackledge expect Netflix's engagement with consumers to remain high. In a June 30 customer rating, it maintained an outperformance rating and a target price of $ 650 per share.

Read: Only Two Companies Had More Emmy Nominations Than Netflix

According to Cowen's survey of 2,500 US consumers, Netflix is ​​still considered the king of video sharing despite rising investments from Disney, Apple and HBO Max. Netflix had 28% of the vote, way ahead of Google
Google,
-1.88%

Goog,
-1.97%
YouTube (15%), basic cable (10%) and Amazon Prime Video (9%).

"We believe Netflix is ​​well positioned as the first choice for online streaming of movies and TV shows as the company continues to grow Originals and add value to the service," wrote Blackledge.

JPMorgan analyst Doug Anmuth believes Netflix may have its "strongest six-month table of contents ever," which could help it break into international markets. He suggests 2 million net additions based on data as of June 10, and anticipates 14.25 million net additions in the second half of the year – 5.25 million in the third quarter and 9 million in the fourth quarter.

Anmuth, who reiterated an overweight rating and a target price of 600 US dollars in a communication dated July 9th to investors, is in the series "The Kissing Booth", "Money Heist", "Sex Education", "The Witcher" and "You." "bullish". . ”He's also big on the films“ Red Notice ”and“ Don't Look Up ”.

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