Netflix has been a star performer in the coronavirus pandemic, and investors are looking for signs that the company can reap lasting gains from the stay-at-home movement.
The streaming giant reports its latest earnings on April 21, and investors are eager for more details on what the coronavirus pandemic has meant for its business model. Amid turmoil in the broader markets, Netflix shares closed at an all-time high of $413.55 on Tuesday.
“Into the quarter, this is a stock that has materially outperformed the broader market with shares up about 27% YTD compared to a roughly 12% decline in the S&P 500 as of Tuesday’s close,” said Jeff Marks, an analyst with Jim Cramer’s Action Alerts Plus. “And it is rightfully so, because Netflix and its namesake streaming service is a winner from people being told to stay in their homes, representing a shift in consumer habits that has likely accelerated the cord-cutting trend.”
Here are a few themes to watch when Netflix reports its March quarter earnings.
1. Subscriber Trends
Netflix’s U.S. subscriber growth has tapered off in recent quarters. And given timing — the first U.S. stay-at-home orders were announced in mid-March, with just a couple of weeks to go in the quarter — Netflix’s U.S. growth may not have been hugely impacted in that time frame. Looking ahead, positive growth trends for Netflix could be reflected in its guidance for the rest of the year. And the company may also have notable results or commentary from international markets where the virus predated in the U.S., namely Europe. Subscriber growth is the main engine of Netflix’s stock performance, and it remains paramount — pandemic or not.
In a recent note, Credit Suisse analysts noted a surge in downloads across several markets in late March, and argued that Wall Street’s consensus forecast of 7.6 million new subscribers is much too low. If Credit Suisse is right, Netflix delivers a blowout quarter in subscriber growth, its stock could be in for a nice boost.
2. Competitive Impact
While the pandemic dominates headlines, the competitive field for streaming has also changed since investors last formally checked in with Netflix. Disney+ has demonstrated a strong early performance, with Disney reporting 50 million paid subscribers. NBCUniversal’s Peacock and AT&T TimeWarner’s HBO Max are also due to launch in the coming weeks. Netflix management acknowledged some competitive impact on its U.S. results in its fourth quarter shareholder letter — but, of course, that was pre-coronavirus.
Many analysts expect the stay-at-home movement to accelerate cord-cutting, and multiple companies may stand to benefit. But for a sign of who will “win” this chapter of the streaming race, investors are keeping a close eye on churn. Whether fickle customers jump from Netflix to other services “help(s) determine what the product’s pricing power is,” added Marks.
3. Netflix’s Content Slate
Widespread stay-at-home orders coincided with some buzzy new content from Netflix, such as Tiger King, the viral docuseries that spawned a thousand memes. Credit Suisse noted in its earnings preview that “Netflix’s unscripted originals are the story right now, also adding reality series Love is Blind (6 weeks U.S. top 10), Cheer, and true crime Trials of Gabriel Fernandez (3 weeks U.S. top 10).”
No doubt, those content hits were a feather in Netflix’s cap for the quarter — and investors may soon learn more about whether they drove subscribers, too. But the content outlook is less well understood going forward, with new productions on hold for Netflix and other media companies as the world navigates the pandemic. With subscriber growth often correlated with the strength of Netflix’s content slate, investors are eager for more detail on what the company has to offer content-wise for the rest of the year — and what that means for its financial outlook.
— The Street