- Analysts estimate EPS of $2.93 vs. $2.97 in Q2 FY 2021.
- Global paid streaming memberships are expected to rise YOY, but at the slowest pace in more than three years.
- Revenue is expected to rise, though at a decelerating pace as Netflix faces increasing competition in the streaming entertainment market.
Netflix Inc. (NFLX), once accustomed to torrid revenue and profit growth, is now facing major challenges. Inflation is limiting consumers' home entertainment budgets, the supply chain crisis has hurt smart TV sales, and streaming entertainment competitors are luring away viewers. In a bid to reverse decelerating growth, Netflix plans to launch a lower priced, advertising-supported version of its platform later this year. This marks a major departure for Netflix, which branded itself for years as an ad-free company.
Investors will closely watch Netflix executives' plans to overcome these challenges when the company reports earnings on July 19, 2022 for Q2 FY 2022. Analysts expect that Netflix's quarterly earnings per share (EPS) will fall year-over-year (YOY) for the second consecutive quarter. Revenue is expected to grow, but at the slowest quarterly pace in at least five years.
Investors will also focus on Netflix's global paid streaming memberships, a key measure of its monetizable user base. Although Netflix's subscriber base grew to over 200 million during the COVID-19 pandemic, the rate of growth has been on a path of quarterly deceleration for about two years. Analysts predict that Netflix will see its slowest membership growth rate in several years.
Netflix shares have vastly underperformed the broader market in the last year. The stock outpaced the market between August and December of 2021, but it fell both before and after the company's Q4 and FY 2021 report in January 2022. Investors were jolted on Jan. 20, when the company forecast it would add far fewer subscribers in Q1 than a year earlier. The stock fell sharply again after the company's Q1 FY 2022 report in April. Since that time, it has traded roughly sideways. As of July 16, Netflix stock has provided a 1-year trailing total return of -65.2%, well behind the S&P 500's -11.4%.
Netflix Earnings History
Netflix's EPS rose 84.8% for all of FY 2021 , the strongest growth in several years, as consumers sheltered at home amid the pandemic and watched more TV entertainment. But since then, growth has decelerated sharply. After rising 138.9% in Q1 FY 2021, the rate slowed to 11.8% by Q4 FY 2021. It's worse this year. EPS declined YOY in Q1 FY 2022, the first drop since Q4 FY 2020. For Q2, analysts estimate that EPS will fall again, by 1.3%.
The company's revenue performance has also trended downward in recent years. In Q2 FY 2018, revenue growth was 40.3%. It slowed to 26.0% and 24.9% in Q2 FY 2019 and Q2 FY 2020, respectively. Revenue growth fell below 20% in Q2 FY 2021. For Q2 of this year, analysts estimate that revenue will rise 9.4%, the weakest quarterly revenue growth in at least five years.
|Netflix Key Stats|
|Estimate for Q2 FY 2022||Q2 FY 2021||Q2 FY 2020|
|Earnings Per Share ($)||2.93||2.97||1.59|
|Global Streaming Paid Memberships (M)||219.6||209.2||192.9|
Source: Visible Alpha
The Key Metric
As mentioned above, investors will also focus on Netflix's global paid streaming memberships, also known as global streaming paid subscribers. The metric indicates the number of global users that have signed up and paid for a subscription to receive streaming services. Streaming memberships have long been Netflix's primary source of revenue. But video streaming has become increasingly competitive in recent years, and Netflix now faces threats from rivals like Apple Inc.'s (AAPL) Apple TV+, Walt Disney Co.'s (DIS) Disney+, Amazon.com Inc.'s (AMZN) Amazon Prime Video, and AT&T Inc.'s (T) HBO Max. To attract new subscribers the company is spending more on content. As mentioned above, it also plans to roll out an advertisement-supported version of its platform.
Netflix's quarterly subscriber growth rate has slowed sharply in recent years. It downshifted from 21.9% in FY 2020 to just 8.9% a year later in FY 2021. By comparison, in FY 2015 the company posted 30.0% YOY global streaming paid subscriber growth. The company's subscriber increase of 6.7% Q1 FY 2022 was the lowest in at least four years. Analysts see more bad news in Q2, estimating a subscriber growth of 5.0%.
Bloomberg. "Netflix Slowdown Has Multiple Factors, Co-CEO Says."
Bloomberg. "Netflix Chooses Microsoft as Partner for Lower-Priced Service With Ads."
Netflix Inc. "Netflix to Announce Second Quarter 2022 Financial Results."
Visible Alpha. "Financial Data."
Wall Street Journal. "Netflix Shares Sink as Company Sees Subscriber Growth Slowing."
Netflix Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 20.