Netflix Inc. (NFLX) is one of the dream stories of the great bull market, its shares rising nearly 6-fold in the past five years and gaining about 35% despite the turbulent market in 2019. All seems well in Netflix's fantasy land of movies and entertainment.

But trouble has been brewing beneath the surface as the leader in streaming entertainment faces rising competition, slowing subscriber growth, continuing cash burn and a stock that's gone nowhere in the past year, down 12% off its record high in 2018.

What Investors Are Watching For In 2Q

So it's no surprise that investors are likely to focus on these issues, all centered around growth, when Netflix reports earnings less than month from now. Investors will want to know how CEO Reed Hastings plans to maintain U.S. subscriber growth in the face of rising competition from rivals such as Walt Disney Co. (DIS), and how Netflix will maintain its rapid expansion abroad, where Netflix gets most of its growth. Investors also will want to know if price hikes on its services are eroding demand as the company tries to reduce its rate of cash burn.

Most important, Netflix has to overcome a new skepticism about its prospects. "Subscriber growth is no longer enough. Netflix needs to prove it can monetize its original content before competition (with decades of monetization success) takes more market share. Time is running out for Netflix’s current business model to work," said David Trainer, an analyst at investment research firm New Constructs LLC, in a May column in Barron's.

Netflix By The Numbers

Estimates for Q2 results themselves are a reason for concern. Analysts surveyed by Yahoo Finance expect earnings to come in at $0.56 per share, about 34% lower than year-ago EPS at $0.85. That's even as the consensus calls for rapid revenue growth to $4.93 billion, marking a 26% jump over the year-ago quarter.

Subscriber Gains

The most watched metric for Netflix is subscriber gains, another red flag. For Q2 ending June 30, management forecasts subscriber growth at 5 million, much less than new paid members in the same quarter last year. That guidance in April shocked investors and send the stock plunging. By contrast, in Q1, the company saw a 9.6 million increase in paid members, well above guidance.

To be sure, analysts estimate that growth will regain momentum in the second half of the year as its content offerings include big-name series like Stranger Things, and Orange Is the New Black, as well as movies like Michael Bay’s new film, 6 Underground. 

Investors will focus most heavily on Q2 international growth, expected to help offset U.S. deceleration as the company ramps up programming in foreign markets. In Q1, Netflix’s international subscriber growth accounted for more than 80% of total paid subscriber additions, according to Bloomberg.

Looking Ahead

Also important for investors will be any insight from Netflix on the impact of rival entertainment providers like Amazon.com Inc. (AMZN) and Disney. The entrance of these well-financed players in the streaming market is forcing Netflix to spend more money on original content to compete and has squeezed profits, analysts say. That rising competition will ultimately test whether Netflix can stop burning cash and build a sustainable model. For more on Netflix, stay tuned for the company's second quarter results estimated to come out on July 17.