Analysts are increasing their subscriber growth estimates above previous guidance for 7 million in the first quarter.
Netflix’s stock has risen more than 30 percent year-to-date, driven as of late by Wall Street expectations that the global streaming giant would turn out to be one of the rare beneficiaries of the coronavirus pandemic and governments’ stay-at-home orders.
Heading into the company’s first-quarter earnings report on Tuesday, analysts have increased their subscriber growth estimates above management’s previous guidance for 7 million in the first quarter, with various observers mentioning a consensus estimate of 7.5 million. But just how strong subscriber gains for the period will be remains a topic of much debate. The earnings period include roughly a month's worth of virus crisis impact.
The company’s actual results, forecasts and color commentary on Tuesday, as always, have the potential to drive its stock, which has been running up with the recent estimate tweaks likely to focus even more attention than usual on the earnings report.
"With the ongoing COVID-19 pandemic increasing the quantity of leisure time spent indoors, we expect to see Netflix’s next quarterly reporting to indicate that the strong value for money its library and fresh content represents has attracted a glut of new subscriptions," Futuresource analyst Tristan Veale tells The Hollywood Reporter.
Cowen analyst John Blackledge, in an April 15 report, increased his subscriber expectations, but remains on the lower end of the Street range. He now forecasts Netflix will report the addition of 7.1 million subscribers in the first quarter, compared with an all-time high of 9.6 million in the year-ago period. His forecast includes 772,000 subscriber additions in the U.S. and Canada, compared with 1.88 million in the year-ago period.
Wedbush Securities analyst Michael Pachter on April 16 forecast 7 million subscriber gains in the latest quarter, including 500,000 in North America. “Stay-at-home guidelines around the world have clearly driven streaming usage and viewership up, which has likely dampened churn and driven incremental sign-ups,” he wrote in his report. “That said, the most meaningful mandated closures (in terms of affected population size) began in late February-mid March. The timing of COVID-19-related usage and sign-ups late in the quarter, combined with an existing high degree of penetration for Netflix’s domestic addressable market, suggests relatively tempered upside in our view.”
Others have turned more bullish amid the coronavirus pandemic. Pivotal Research Group analyst Jeff Wlodarczak on April 15 raised his first-quarter subscriber growth forecast to around 8.5 million, including 750,000 in the U.S. and Canada. He cited “likely higher gross subscribers and lower subscriber churn boosted by global consumer ‘stay at home’ orders around COVID-19.”
Morgan Stanley analyst Benjamin Swinburne boosted his first-quarter forecast by 1.5 million to 8.5 million subscriber additions, including 1.1 million in the U.S. and Canada.
And Evercore ISI analyst Vijay Jayant on April 16 forecast a first-quarter subscriber gain of 9.5 million, citing increased app downloads and “our expectation that churn has similarly improved as a result of the pandemic.” SunTrust Robinson Humphrey analyst Matthew Thornton on April 6 even projected that Netflix would report near-record subscriber additions of "more than 9.5 million” in the first quarter.
MoffettNathanson's Michael Nathanson closed out last week with an April 17 streaming report entitled "The Perfect Storm," predicting Netflix could have added 1.75 million domestic subscribers and nearly 8.47 million international subscribers during the first quarter for a total of more than 10.2 million, which would be a company record.
For the second quarter, Pachter predicts 4.25 million subscriber additions, Jayant projects 5 million, and Wlodarczak forecasts 5.7 million, including 400,000 in North America.
In comparison, Blackledge estimates Netflix would add 3.09 million subscribers, including 345,000 in the U.S. and Canada. In the second quarter of 2019, the streamer had lost 132,000 subs in North America, but added 2.7 million on a worldwide basis. “We believe the better sub growth in the second quarter compared to the second quarter of 2019 will be driven by the macro impact of COVID-19 forcing many consumers to stay home, as well as the lapping of the 2019 pricing increases in the U.S. and non-U.S. markets combined with a more robust original content slate,” the analyst wrote.
Some suggest though whatever subscriber number Netflix provides on Tuesday, the news is already in the stock price.
“Despite a broader market pullback, Netflix shares have rallied sharply over the last several weeks on the idea that the pandemic has made the platform invaluable to consumers around the globe while people remain at home with a more limited set of entertainment options,” Jayant, who has an "in line" rating on the stock, wrote in his Thursday note. "Netflix is the fourth best-performing stock year-to-date in the S&P500 index."
Morgan Stanley's Swinburne also warned of the potential second-half 2020 impact of a lack of originals that has been put on ice amid the virus crisis. "Delayed production on original content could negatively impact Netflix's upcoming release schedule in the second half of the year and beyond," he wrote. "New content releases are a key driver of customer acquisitions, and we take a more conservative approach to paid subscriber net adds in the second half of 2020 assuming some disruption to content delivery."
Pachter, who has long been bearish on Netflix, reiterated his "underperform" rating on Netflix's stock, writing: “COVID-related streaming gains appear more than priced in.”
And Benchmark Capital's Matthew Harrigan on April 17 initiated Netflix's stock with a "sell" rating and $327 price target in a report with the headline: "51 percent Tiger King/COVID-19 run from St. Patrick's Day low seems excessive."
He explained: "Even heading into likely strong first-quarter results, with informal expectations as high as 10 million global member additions from aberrant shelter in place mandates, we believe that Netflix's stock price fully recognizes its global streaming leadership and the pop culture appeal of transient hits like Tiger King. Our cautious view is based on our belief that the shares already reflect a 'lazy long' halo from the perception of a COVID-19 safe haven."
