Netflix Inc. (NASDAQ: NFLX) is set to report its third-quarter earnings results on Wednesday after the market closes. The results will be driven by subscriber growth in its international streaming business. However, the bottom line is likely to be hurt by higher content expenses and headcount costs.
The content including more originals will be acquired, licensed and produced by Netflix. The company will experience headcount costs due to the continued improvements in streaming service, international expansion, and growing content production activities.
The average monthly revenue per paying streaming membership is predicted to increase backed by price changes and shift in the plan mix towards higher-priced plans. As of June 30, 2019, pricing on the company’s plans ranged in the US from $8.99 to $15.99 per month and internationally from the US dollar equivalent of about $3 to $22 per month.
Netflix has amended its growth strategy in the midst of losing popular shows Friends and The Office. This has made the company lower spending on shows that have a lesser level of viewership. However, certain shows like Stranger Things experienced record viewership for season 3.
The company has been facing stiff competition from Disney (NYSE: DIS) and Apple (NASDAQ: AAPL), who have been planning to enter into the streaming service and this could slow down the net additions of Netflix. As of June 30, 2019, the company has a total debt of $13.68 billion while the total cash stood at $5 billion. Netflix has been facing mounting debt due to the creation of original content and members’ accumulation.
Analysts expect the company’s earnings to jump by 16.90% to $1.04 per share and revenue to surge by 31.30% to $5.25 billion for the third quarter. The company has surprised investors by beating analysts’ expectations in all of the past four quarters. The majority of the analysts recommended a “strong-buy” or “buy” rating with an average price target of $370.71.
For the second quarter, Netflix reported a 29% plunge in earnings due to higher taxes it has to pay towards corporate restructuring. However, revenue increased by 26% on a hike in subscription fees in multiple markets. The company added only 2.7 million paid subscribers in the quarter, missing its own target of 5 million.
For the third quarter, the company predicts net revenues to grow by 31% to $5.25 billion. Earnings are anticipated to be in the range of $1.04 per share. Netflix expects to grow by 7 million paid memberships in the third quarter, more than the 6.1 million in the previous year quarter.
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