Earnings season is underway and there's no shortage of story lines when Netflix reports its second quarter earnings after the bell on Wednesday. Wall Street analysts say they'll be squarely focused on key metrics like cash, content, and comments on upcoming competition from Disney and HBO Max.
The streaming giant is up 37% year to date, that's second only to Facebook among the so-called FAANG stocks. But it's also underperformed the market over the past year, concerning analysts. FAANG refers to a group of internet and tech stocks including Facebook, Amazon, Apple, Netflix, and Google.
Despite the concerns, most analysts are still urging clients to buy into the report.
"NFLX remains one of our top picks, and while the competition/price increase-related churn 'wall of worry' could take a few quarters to disprove, we think it presents a good buying opportunity," J.P. Morgan analyst Doug Anmuth said.
"Wall of worry" refers to when a company runs into a stumbling block in the market causing temporary uncertainty.
Content and competition issues are mostly "noise," according to analysts at Bank of America
"We see most near term risks for Netflix as fleeting, with structural growth expected to hold," they said.
"We would see any dip around these worries as an enhanced buying opportunity because we do not see Disney/HBO as the competition and we expect, as has happened before, any price hike driven increase in churn to be short-lived as consumers come back for Netflix's content."
However, one analyst says he's keeping his sell rating, "until we see progress."
"Should cash burn stabilize and reverse trajectory, we are prepared to reconsider our underperform rating," Wedbush analyst Michael Pachter said.
Here's what major analysts are saying about Netflix's upcoming earnings report:
"We expect Netflix to again deliver record net additions and near double digit ARPU growth (ex-FX) in 2019. This reflects both the secular tailwinds driving Internet TV and Netflix's leadership position. Looking forward, we expect continued growth but importantly also expect FCF burn to moderate...While we acknowledge the popularity of syndicated content coming off Netflix's service, we believe it can still deliver on robust expectations despite the shifting supply chain."
"NFLX remains one of our top picks, and while the competition/price increase-related churn "wall of worry" could take a few quarters to disprove, we think it presents a good buying opportunity. We expect the underlying global secular shift toward streaming and NFLX's strong 2H original content slate to drive record paid net adds in 2019, price increases to drive revenue acceleration & OI margin expansion through the 2019 qtrs, & FCF to materially improve in 2020."
"We remain positive on NFLX shares over the medium- to long-term given 1) still meaningful subscriber growth opportunity, 2) still meaningful pricing power, 3) the pivot to profitability expected over the next 12-24 months, and 4) the room for multiple OTT winners (as well as Netflix's substantial lead over new entrants)."
"Based on intra-quarter data points and model sensitivity work, we believe Street Revenue, Subs, and EPS estimates for Q2 are reasonable, with slightly greater likelihood of upside vs. downside variance. For Q3:19 guide, we view Street Revenue, Subs, and EPS estimates as reasonable/ bracketable, with strong H2 content slate and tentative evidence of successful price increases likely accelerating Revenue growth and Global Sub Adds, and expanding Operating Margins."
"Competition, content worry is noise, not a signal. We see most near term risks for Netflix as fleeting, with structural growth expected to hold. Competitive noise from Disney/HBO Max/Apple launch plans, content departures and potential for weak domestic subs amid price hikes could shake confidence briefly....The loss of "Friends" and "The Office" is not all bad...We would see any dip around these worries as an enhanced buying opportunity because we do not see Disney/HBO as the competition and we expect, as has happened before, any price hike driven increase in churn to be short-lived as consumers come back for Netflix's content."
"While the launch of Disney+ in late 2019 remains an unknown, we think the past few qtrs (incl. our analysis of current qtr trends) point toward a business model with a widening competitive moat while price increases have resulted in only modest (& well within expectation) churn dynamics and broad-based healthy gross add trends continuing to compound the business's global scale....Ahead of its earnings report, we think many investor fears for NFLX are well understood and, longer term, we remain constructive on NFLX on the back of a flywheel of compounding sub growth leading to scale as content creation success continues to produce pricing power and rising margin/FCF dynamics."
"We expect the company to continue to increase its marketing and content spending over the next several years in order to maintain the pace of its subscriber growth. Should cash burn stabilize and reverse trajectory, we are prepared to reconsider our underperform rating. Until we see progress, we are reiterating our underperform rating and 12-month price target of $183 per share."