Netflix Inc. (NFLX) experienced an acceleration in subscription growth last year as people sheltering at home increased their consumption of streaming entertainment during the COVID-19 pandemic.
However, the pace of viewership gains has slowed this year as the economy has opened up, and as the streaming market has become increasingly competitive. That’s prompted Netflix to seek faster growth by expanding into video games. The company made its first video game studio acquisition in late September, purchasing Night School Studio.3
Investors will be watching to see if Netflix can overcome these headwinds and maintain its strong financial performance when the company reports earnings on Oct. 19, 2021, for Q3 FY 2021. Analysts expect both earnings per share (EPS) and revenue to expand, but at a slower pace than in recent quarters.
Investors will also focus on Netflix’s global paid streaming subscribers, a key measure of its monetizable user base. The company surpassed 200 million total global subscribers at the end of FY 2020, but growth has been slowing dramatically compared to last year. Analysts expect a slight acceleration in the pace of growth in Q3 compared to the previous quarter.
Shares of Netflix have lagged the broader market over the past year. The stock’s outperformance gap with the market especially widened from about mid-April to mid-August. It has since begun to close that gap but is still underperforming. Netflix’s shares have provided a total return of 15.9% over the past year, below the S&P 500’s total return of 28.4%.
Investors will also focus on Netflix’s global paid streaming subscribers, which the company refers to as “global streaming paid memberships”. The metric indicates the number of global users that have signed up and paid for a subscription to receive streaming services. Currently, streaming memberships are 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 TV+, Disney+, Amazon Prime Video, and HBO Max. The company is starting to venture into other areas of the entertainment industry as the streaming film and TV market becomes increasingly saturated.
Netflix expanded its global paid streaming subscribers from 54.5 million at the end of FY 2014 to 203.7 million as of the end of FY 2020. Growth, however, has gradually decelerated as the company’s total subscriber base has continued to increase in size. In FY 2014, Netflix’s global paid streaming subscribers rose at a pace of 31.5%. That pace slowed to 20.0% by FY 2019. It accelerated to 21.9% in FY 2020 as people sheltered at home amid the COVID-19 pandemic and streaming video became a go-to entertainment option for many. But the deceleration trend has returned so far in FY 2021, with YOY growth in the first quarter slowing to 13.6% and again to 8.4% in the second. Analysts expect a slight acceleration to 9.1% in Q3 FY 2021, but still much slower than the historical pace of growth. For year’s end, analysts are forecasting global paid streaming subscribers to rise 8.6%.
We can expect net paid additions to its subscriber base of 3.5 million, with an average revenue per member increase of 5%. Revenue of $7.48 billion and earnings per share (EPS) of $2.55 have been forecast by the company.
A consensus of estimates from Refinitiv arrives at the following expectations for the Q3 2021 Netflix results:
*Revenue $7.48 billion: +16.2% year on year (YoY)
*Net income on an adjusted basis $1.158 billion: +46.63% YoY
*Operating profit $1.156 billion
*Earnings before interest, taxes, depreciation and amortization (EBITDA) $1.705 billion: +17% YoY
*EPS of $2.56.
Netflix Long (Buy)
Enter At: 642.72