Netflix Q2 Earnings Preview: What To Watch For In The Streaming Giant's Report

Netflix, Inc. NFLX stock has more than doubled year-to-date.

The streaming platform's momentum is building ahead of a July 16 second-quarter earnings report, and the stock is trading just off its all-time closing record.

Will the Q2 print act as a further catalyst for Netflix stock?

The Consensus Estimate

Analysts, on average, estimate Q2 earnings of 80 cents per share, a strong jump from 15 cents one year ago.

The revenue estimates of 38 analysts range between $3.92 billion and $4 billion, with the consensus at $3.94 billion, up from $2.79 billion reported in Q2 2017, according to Yahoo Finance.

Over the last 90 days, the consensus EPS estimate has moved from 65 cents to 80 cents.

In its first-quarter earnings release, Netflix guided Q2 EPS to 79 cents and revenue to $3.9 billion.

Netflix shares rose over 9 percent after the Q1 print April 16, which showed in-line top- and bottom-line results and better-than-expected net subscriber additions.

Incidentally, shares ran up modestly before the most recent quarterly report.

Key Metrics To Watch

Net adds for the domestic as well as international segments; operating margin; and non-GAAP free cash flow are among the key metrics to watch in the Q2 print.

The company's guidance envisages net subscriber adds of 6.2 million for Q2, comprising 974,000 domestic adds and 4.27 million international adds.

Imperial Capital's David Miller estimates adds of 6.11 million, with the domestic-international mix being 1.22 million and 5.05 million, respectively, while the analyst expects DVD-only membership to slip by 0.16 million.

Miller said he expects original series "Lost In The Space" and "My Next Guest Needs No Introduction" to catalyze subscriber growth.

Netflix should post a meaningful average selling price increase in the wake of increased subscription pricing announced in October, Miller said.

Netflix continues to expect negative free cash flow of $3 billion to $4 billion for fiscal 2018, with the cash burn likely to continue for several years due to heavy spending on original content.

Barclays analyst Kannan Venkateshwar is of the view that Netflix should to be valued on a per-subscriber basis, instead of with conventional metrics such as total addressable market, average revenue per user and churn. Yet this method needs to be adjusted for differences in respective ARPUs, churn and margin profiles, the analyst said.

"Based on this, Netflix's valuation is not too far off from legacy media businesses, which are growing significantly slower," Venkateshwar said.

The Stock

In the first half of 2018, Netflix shares gained 104 percent compared to a more modest 8.8-percent advance by the Nasdaq Composite Index and a 1.7-percent rise in the S&P 500 Index.