Netflix Down On Subscriber Warning
Netflix shares have suffered heavy selling this week in response to a negative Q2 earnings report. The company’s stock price suffered a 15% decline this week and is trading 7% down pre-market on Friday.
The sell-off comes in the wake of the streaming giant warning that a surge in subscriptions seen during the height of the pandemic will not last. Customer levels are likely to fall as “consumers get through the initial shock of coronavirus and social restrictions.”
Netflix had reported an increase of over 10 million subscribers in the three months to July taking its overall customer level to 26 million for the year as a whole. This represents a strong increase from 2019 when the company registered 28 million subscribers in the year.
Earnings Miss In Q2
In its Q2 earnings report this week, Netflix reported earnings per share of $1.59. This was versus expectations of a $1.81 EPS, on revenues of $6.15 billion.
Reed Hastings, the Netflix CEO also announced the promotion of Chief Content Officer Ted Sarandos to co-CEO. He further confirmed that he plans to retain his role, allaying speculation that Sarandos’ promotion is part of a move to ease out of the role. During the call, Hastings said, “I’m in for a decade”.
Looking ahead to Q3, Netflix offered earnings guidance of $6.33 billion. This came in just below analyst expectations of $6.40 billion. In terms of subscribers, Netflix is looking for a net addition of 2.5 million subscribers in Q3. This is well below the consensus forecast of 5.27 million.
“Growth Is Slowing”
In a shareholder letter, Netflix advised:
“Growth is slowing as consumers get through the initial shock of COVID and social restrictions. Our paid net additions for the month of June also included the subscriptions we canceled for the small percentage of members who had not used the service recently.”
One of the big headwinds the company faces now is the slowdown in the production of new films and series. This is due to restrictions in place over recent months which have disrupted its schedule. Netflix will now have to work hard on delivering new content if it is to hold onto its subscriber base and not risk levels falling below the projections cited this week.
Netflix Holding Within Bullish Channel
Netflix shares reversed from testing the upper trend line of the bullish channel this week with price declining 15% from the 574.70 level. However, price has managed to recoup some of these losses. While shares remain above the 475.17 level, focus is on further upside in the near term.
To the downside, if selling resumes and the 475.17 level is broken, focus will turn to deeper support at the 397.39 level next.