Netflix investors brace for subscriber losses as company focuses on reforms

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Netflix is ​​announcing its second-quarter earnings on Tuesday, and the lead up appears to be hurricane preparation. The storm is coming. It is likely to be bad. Shareholders pray that the foundation is strong enough to withstand the damage.

Netflix remains the world’s largest streaming service, but the company reported its first quarterly loss of subscribers in more than a decade earlier this year and warned that it expects to lose 2 million global subscribers in the second quarter. This will be the largest quarterly loss in the company’s history.

The losses are likely to be worse than expected. Alarming macroeconomic trends. Fears of a possible recession and already rampant inflation could slow spending in Netflix’s $15.49 per month standard US plan, making it more expensive than all the other major streaming services. This can make it the number one choice people opt out of when looking to save money.

The competition also continues to rise. By the end of the year, HBO Max will likely add the full Discovery+ list of content to its service, which costs $14.99 a month or $9.99 with ads. Disney last week raised the price on ESPN+ by $3 a month to $9.99, but kept its bundled offerings of Disney+, Hulu, and ESPN+ the same at $13.99 a month. That could lead to more customers for the Disney bundle, which is another potential alternative to Netflix.

“I don’t know if it [this quarter] “It’s going to be bad, but it’s not going to be a good story,” said Andrew Rosen, former Viacom digital media executive and founder of broadcast newsletter PARQOR.

At the beginning of 2022, many analysts predicted that Netflix would add more than 20 million new subscribers this year. In April, JPMorgan analyst Doug Anmuth estimated that the company would add 17.95 million in 2022. After the bombshell in the last quarter, he lowered his full-year forecast to about 4 million.

The big question about how Netflix’s stock will perform after the results are announced will be how much bad news has actually been transferred to the stock price. Already, Netflix’s market valuation has risen from $300 billion to less than $90 billion in less than a year.

“For now, I think the markets will focus on subscribers,” Yong Yu Ma, chief investment analyst at BMO Wealth Management, told CNBC on Monday. “I think there’s a whole lot of potential outcomes in terms of how much deterioration they actually see and how far that will go in the future.”

weather the storm

As the last-quarter earnings conference call drew to a close, Spencer Newman, Netflix’s chief financial officer, jumped in to reassure investors that positive growth would come in the third and fourth quarters.

Neumann said the expected loss of 2 million subscribers in the second quarter does not mean continued losses: “We will increase revenue. There will be net growth driven.”

A still shot from the third season of “Stranger Things,” with the Hawkins crew on the cusp of adulthood and confronting enemies old and new.

Netflix

Netflix is ​​counting on a stronger slate of content, including a new season of “The Crown” and the nearly $200 million action movie “The Gray Man,” starring Ryan Gosling and Chris Evans, to accelerate growth. Rosen said he would need to “oversupply” in international regions — Latin America, Asia Pacific and the EMEA unit — to account for the growing headwinds in the United States and Canada.

Netflix also has a lot of things other streamers don’t. Primarily, he’s making money, and all indications are that he won’t change anytime soon. Most analysts expect net income to reach nearly $5 billion this year. By contrast, NBCUniversal’s Peacock is set to lose $2.5 billion this year. Even Disney, which has already added nearly 140 million Disney+ subscribers worldwide since its launch in late 2019, lost $887 million from its streaming products last quarter.

And with 222 million subscribers globally — at least, before any official losses were announced on Tuesday — Netflix remains the largest streaming service on the planet. It’s a huge draw for any creator who wants to create content for the largest audience possible. It’s also an important carrot for advertisers, who will finally be able to reach the Netflix audience by the end of the year, when the company first launches an ad-supported subscription option.

Netflix also plans to eliminate password sharing worldwide, a process that could add tens of millions of new subscribers over time. Netflix estimates that more than 100 million families globally do not pay for Netflix, and more than 30 million of them are in the United States and Canada.

But long-term efforts are yet to come out, and the main theme of Tuesday’s findings may simply be damage control.

Netflix shares are up 1% Monday to $190.92 and are down more than 68% since the start of the year.

WATCH: Netflix investors remain focused on near-term subscribers, says BMO’s Yung-Yu Ma

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