Netflix stock: What to take away from the recent earnings?

Netflix (NASDAQ: NFLX) is one of the world’s largest entertainment and streaming companies that have driven significant growth over the past decade. This growth is reflected in the companies 209 million paid memberships worldwide.

Because of Netflix, the world has witnessed massive strides towards streaming platforms, such as Amazon Prime Video, Disney+, and more.

Despite this, Netflix stock has been somewhat lackluster and has remained volatile over the past year. Recent earnings misses may be a factor in shareholders confidence in the stock.

Netflix Recent Earnings

Netflix recently reported steady growth for new subscribers in the second quarter, beating analyst estimates of 1.15 Million. In total, 1.54 million new subscribers were added compared to the 10.09 million in the year prior. This news along with disappointing earnings of $2.97 per share (analyst estimate was $3.18) made investors begin to wonder if the companies growth is beginning to plateau.

However, Netflix also reported second-quarter revenues increasing 19% year over year to $7.3 billion. Operating margins also improved year-over-year to 25.2% which showed higher profitability in the business.

It was stated that COVID created some unprecedented growth last year, which makes this quarter’s numbers somewhat insignificant compared to others.

Netflix stock
LONDON, UK – MAY 14 2020: Netflix logo on a smartphone with popcorn

Looking forward

During the third quarter of this year, Netflix hopes to add 3.5 million new subscribers to their streaming platform. Last year during the same time, Netflix acquired 2.2 million new subscribers. In addition, Earnings per share from Netflix guidance are expected to reach $2.55 in the third quarter of this year.

On a side note, Netflix also announced their new video game service. This service will allow members already with subscriptions to play games on their mobile devices. This may potentially encourage more members to join Netflix’s subscription service or prolong the time that an individual stays a subscriber.

Although streaming services and platforms have been growing rapidly worldwide, according to Nielsen, streaming still represents only 27% of US TV screen time. Out of this 27%, Netflix only accounts for about 7% of US TV screen time. This and the fact that Netflix is not yet well-known in many countries signals there may still be incredible opportunities to capture more subscriber growth over time.

If Netflix can reach its goals, it will show signs that there may be some significant growth left ahead, which may drive some future stock price momentum.

The Main Takeaway for Netflix stock

It’s uncertain how shareholders will look at Netflix in the short term because stock prices are quite unpredictable, but it’s clear Netflix is optimistic about the long-term streaming environment with the strategies it can pursue.

Quarterly earnings still remain important, although it’s always worth zooming out and get a long-term perspective of Netflix’s revenue, earnings, and subscriber growth to better understand where they are going. What matters is the long-term focus and plan.

Overall, a few earnings misses shouldn’t affect Netflix’s business model, especially with a roadmap to eventually capture a larger market share. Hence leading to more profits, but it could very well influence the stock price in the short term.

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

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