Buy the dip in Netflix ahead of its second-quarter earnings report on Tuesday after the bell, Wall Street analysts say. Investors' fears over a lack of subscriber additions are unfounded and help may be on the way, they wrote. The streaming giant's content pipeline is loaded in the second half of the year, analysts say, and that should be enough to keep adding customers. The stock, which was widely seen as one of the biggest stay-at-home beneficiaries, is down 1.5% this year. Here's what analysts expect from Netflix earnings: "Although this crisis has created more erratic subscriber trends, it has acted as a catalyst in introducing more consumers to Netflix, and we believe this story has a long runway of growth in the coming years," investment firm Monness Crespi Hardt wrote this week. The firm believes the Netflix pipeline is so loaded that concerns over adding customers is overdone. "We also expect the content on Netflix to improve in H2:2021, providing an opportunity to attract new paid subscribers," Monness analyst Brian White said. For other analysts like Stifel's Scott Devitt there was a lingering feeling of "softer expectations." Still Devitt said investors should look past this earnings report. "We expect accelerating subscriber additions in 2H:21 supported by a stronger content slate as the company moves past a period of pull-forward digestion and fewer content additions," he said. Meanwhile, Bank of America analyst Nat Schindler went so far as to call this quarter's report "irrelevant." "We look to 2H big content launches to be drivers of [subscription] growth over the next year," he wrote. Schindler acknowledged tough comps for the foreseeable future, but said the company had what it takes to withstand regulatory scrutiny and fight off competitors. Yet, Cowen analyst John Blackledge said in his preview to note to clients earlier this month that Netflix could surprise and deliver better-than-expected subscriber additions. "We view NFLX as a pioneer in online streaming, with further expected growth in subs in the U.S. and expectations for long-term sub growth internationally in existing and new markets," Blackledge said. However, when it comes to content there's only one choice, according to investment firm Baird. "With the leading content portfolio globally, we believe NFLX remains the 'must have' streaming provider," analyst Will Power said. Morgan Stanley - Overweight rating "Results for the streaming leaders this summer will likely test the market's confidence for long-term growth, as net adds YoY are down substantially. While investors are familiar with the net adds 'pull-forward' debate, in this report we highlight how the pandemic slowed down content spending at Netflix. The results of the slowdown in 2020 can be seen in the content offering today and is likely contributing to softer 1H21 net additions." Deutsche Bank - Buy rating "The data we track (i.e. Google Trends) wasn't particularly inspiring as it relates to 2Q, however, neither was management's 2Q guidance for 1M net adds; thus, we don't necessarily see a negative surprise lurking. … We are of the view that content matters and the second half slate should drive an acceleration in net adds. We estimate that servicing churn just to maintain the base requires about 15-16M quarterly gross adds." Jefferies - Buy rating "Covid has forced much of NFLX's most anticipated content into 2H21 and 2022. Historically, successful content has been a catalyst for net sub growth, so, after 2Q earnings, we expect investors to focus heavily on the build-up and ultimate success of upcoming content. … As such, we believe content performance over the next 12 months will play a significant role in shaping how investors view the long-term growth of NFLX." Cowen - Outperform rating "Our proprietary recurring U.S. survey suggests NFLX continues to lead living room TV, as 28% of respondents said NFLX has the best video content, well ahead of other streaming and linear services. … While engagement remains high & churn is low investors are focused on timing of the pull forward effect, with expectations for a 2H21 weighted content slate that could drive higher gross adds. Our 2Q21 US survey data from our proprietary monthly tracker continued to be positive in terms of NFLX content relative to other platforms." Monness Crespi Hardt - Buy rating "Although this crisis has created more erratic subscriber trends, it has acted as a catalyst in introducing more consumers to Netflix and we believe this story has a long runway of growth in the coming years. Looking for 19% growth. We believe Netflix will at least meet our 2Q:21 revenue estimate of $7.288 billion and slightly exceed our EPS projection of $3.09. ... .We also expect the content on Netflix to improve in H2:2021." KeyBanc - Overweight rating "However, we believe that a sequence of catalysts is forming that provides NFLX investors a favorable risk/reward over the next 12-18 months. Specifically, we believe that: 1) the relative net add disparity between Netflix and peers should narrow (combination of Netflix's content launches and competitors facing gross add and churn challenges); 2) further price increases demonstrate pricing power (likely across geographies throughout 2022); and 3) cash deployment will be toward content and buybacks." Barclays - Overweight rating "We are positive on Netflix on account of (a) virtuous cycle of content/distribution scale and consumer inertia; (b) consequent pricing power; (c) international [total addressable market]; (d) management and execution quality; (e) longer-term operating leverage. While valuation does price in many years of growth, the company has beaten top-line expectations relatively consistently." UBS - Buy rating "We expect 2Q Netflix results to reflect a digestion period after consumers bulked up on streaming subscriptions during the pandemic – a theme we expect to play out across multiple sectors. We continue to believe Netflix is a [long-term] secular winner with substantial scale, penetration upside and pricing power – all supporting higher margins and ramping [free cash flow] – with optionality around franchise extension." Canaccord - Buy rating "We expect another quarter of modest subscriber growth in Q2 although investors will likely be focused on how much this metric can rebound during 2H21 as consumer behavior normalizes and the release schedule strengthens. ... The content pipeline for 1H22 and beyond is also robust as COVID-driven production delays pushed out new seasons of some of the biggest titles like "Stranger Things," "The Crown," and "Ozark" into next year, and NFLX continues to invest in unique content both in the U.S. and around the world which is helping to strengthen its competitive positioning and differentiate its library from those of rivals." MoffettNathanson - Neutral rating "Rather, we think that an ad-supported tier or live sports would be the way to go to penetrate harder to reach customer segments and markets, especially in low-[average revenue per unit] emerging regions. Although Netflix management continues to strongly dismiss the idea of advertising, we think that view will be seen as a strategic mistake if future rates of subscriber growth start to fall short of Street expectations." Evercore ISI - Outperform rating "Based on intra-quarter data points, we view the Street's 1.1MM Global Net Adds estimates as ballpark achievable. That said, we believe Q3 guidance will be the key metric to watch especially as mobility continues to recover globally, and we view the Street's 5.8MM Net Adds estimates as modestly aggressive, given a somewhat soft content slate as well as competitive launches from Disney and HBO across international markets that may cause churn to become a more material factor in NFLX's Global Net Adds in the near-term." Benchmark - Sell rating "We look for largely in-line 2Q21 actuals and 3Q21 guidance apart from possible risk to the consensus expectation for 5.5M 3Q21 member additions. We are currently at 3.3M for 3Q21, with skepticism dictated by global reopening activity despite the delta variant and a typically backloaded 2H21 Netflix release calendar. … We anticipate that management could likely to qualify its 2H21 new release optimism with the proviso that the most appealing releases are even more than usual concentrated in 4Q." Wedbush - Underperform rating "While it is certainly possible that Netflix can grow free cash flow faster by curtailing its content spending, we think that competition for new subscribers will limit Netflix's ability to do so, as fickle subscribers from at or below median income households are likely to churn more frequently in the future and to rotate among the many new services offered." Stifel - Buy rating "Our expectations for the quarter are largely in line with consensus. Pandemic-related pull forward in recent quarters and a lighter content slate stemming from production delays last year have resulted in softer expectations for 2Q. We expect accelerating subscriber additions in 2H:21 supported by a stronger content slate as the company moves past a period of pull-forward digestion and fewer content additions." JPMorgan - Overweight rating "While there has been increased discussion around the company toward earnings, we believe overall expectations and sentiment around NFLX remain fairly muted. However, we remain positive on the shares into earnings and 2H21 as we believe NFLX could have its strongest 6-month content slate ever, it gets greater distance from the pandemic pull-forward, & NFLX should make more progress in under-penetrated int'l markets." Credit Suisse - Outperform rating "Our tracking of Netflix releases, in addition to management commentary for the past year, suggests a strong August-December content slate with numerous potential top-of-funnel titles - and we expect a stronger full year slate in 2022 than 2021, led by "Stranger Things" Season 5 and "Bridgerton" Season 2. ... Of note, 2Q results and 3Q guidance remain uncertain, but we expect any 2Q/3Q disappointment would prove a clearing event in any case in front of growth rebounding in 4Q21." Bank of America - Buy rating "We look to 2H big content launches to be drivers of sub growth over the next year. ... Tough comps ahead but long term growth story intact. We believe that while NFLX will face tough comps in the near term, the company will continue to see long term durable growth despite increasing competition and faces less regulatory scrutiny vs mega-cap tech peers. We continue to see NFLX's ability to grow as its global content investment strengthens its value proposition." Baird - Outperform rating "Our various checks suggest mixed Q2 subscriber results, though that seemingly fits with the weaker subscriber guidance following Q1. We expect subscriber growth to improve in conjunction with stronger content in the second half. With the leading content portfolio globally, we believe NFLX remains the 'must have' streaming provider. We believe NFLX remains well positioned for strong revenue growth and accelerating free cash flow, with opportunities to edge the platform into adjacent opportunities like gaming and/or more interactive TV over time." Raymond James - Market perform rating "Sentiment is relatively neutral heading into the print, though we note that the range of expectations for 2H is wider than usual given the uncertainty around re-opening impacts. We maintain our Market Perform rating. While we continue to view Netflix as a long-term winner in the streaming video space, we take a conservative view around the impacts of pandemic re-openings and the scaling of competing services."
Buy the dip in Netflix ahead of its second-quarter earnings report on Tuesday after the bell, Wall Street analysts say.