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What's in the Offing for Netflix (NFLX) in Q3 Earnings?

Zacks Equity Research

Netflix, Inc. NFLX is scheduled to release third-quarter earnings report on Oct 15, after the closing bell. The companyhad banked on membership growth for driving earnings in the third quarter, following a decline in subscription in the second quarter and its failure to add new paid viewers.

While the company has been trying to attract viewers with original content, it has been incurring debts as a result of the same.This is anticipated to get reflected in the third-quarter results.

Subscriber Growth to Drive Q3 Earnings

The company had reported addition of 2.7 million subscribers in the second quarter, falling short of its prediction of 5 million subscribers. Nevertheless, Netflix had predicted an increase of 7 million in total paid subscribers in the third quarter.

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The release of Stranger Things (third season) on Jul 4 is likely to have positively impacted membership growth in the third quarter. Netflix claims that around 40.7 million accounts watched the series within the first four days of release, marking its biggest-ever audience for a movie or TV series in a four-day window.

Per a report from research firm Sensor Tower, Netflix’s mobile-applications’ downloads have improved 18% year over year in the third quarter. In fact, according to a report from Bank of America Merrill Lynch, improvement in app download was “likely aided” by the release of Stranger Things.

Debt to Impact Bottom line

Before competition intensifies from the likes of The Walt Disney Company’s DIS Disney+ and Apple Inc.’s AAPL Apple TV, the company needs to address the piling up of debt related to original content production.

Netflix has a total debt of $13.68 billion as of Jun 30, 2019, while cash totaled $5 billion. With major content producers and providers like Disney and BBC removing contents for their own streaming platforms, there is significant pressure on Netflix to fill up the library with original content.

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The Walt Disney Company (DIS) : Free Stock Analysis Report
 
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