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What to Expect from Netflix’s Q2 Earnings

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On July 10, Netflix (NFLX) stock rose 8.1% and closed at $548.73. It closed 1.3% below its 52-week high of $555.88 and 117.5% above its 52-week low of $252.28. At its July 10 closing price, Netflix stock had a market capitalization of $241.3 billion.

What can investors expect from Netflix’s results for the second quarter of fiscal 2020? The company is set to release its June-quarter earnings results on Thursday after the closing bell.

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Netflix’s Q2 earnings expectation

Wall Street analysts expect Netflix to post sales of $6.08 billion in the second quarter. That number would mark a 23.5% YoY (year-over-year) rise from its sales of $4.92 billion in fiscal 2019’s second quarter. They also foresee the company posting adjusted EPS of $1.81 in the second quarter, compared with $0.60 in the second quarter of fiscal 2019.

Investors should watch Netflix’s subscriber growth in the second quarter. The streaming company expects its net customer additions to rise YoY to 7.5 million from 2.7 million. In its first-quarter shareholder letter, Netflix said, “Given the uncertainty on home confinement timing, this is mostly guesswork. The actual Q2 numbers could end up well below or well above that, depending on many factors including when people can go back to their social lives in various countries and how much people take a break from television after the lockdown.”

In the first quarter of fiscal 2020, Netflix added 15.8 million net customers. That figure beat analysts’ expectation of 8.0 million net customer additions. The significant increase in net subscriber additions is likely due to the rise in demand for online streaming as consumers have stayed at home amid the coronavirus pandemic.

Analysts also expect Netflix’s revenue to rise by 23.1% YoY in fiscal 2020 to $24.8 billion, and its sales to rise by 18.2% YoY in fiscal 2021 to $29.3 billion. They forecast its adjusted EPS to also rise, by about 56.2% YoY to $6.45 in fiscal 2020, and 33.5% YoY to $8.61 in fiscal 2021.

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Analysts’ recommendations and target price

Among the 43 analysts covering Netflix stock, 28 suggest “buy,” ten suggest “hold,” and five suggest “sell.” Their 12-month price target for NFLX is $469.69. On July 10, the stock was trading at a 14.4% discount to that target price. Analysts’ consensus target for NFLX has risen 3.1% from $455.36 in June.

On July 10, Goldman Sachs analyst Heath Terry increased his target price on NFLX to $670 from $540. The analyst expects Netflix to report higher results for the second quarter, adding about 12.5 million net customers. According to The Fly, the analyst said, “Quarterly app downloads reached a record high and year-over-year downloads growth reached its highest level since Q1 of 2016 during the quarter.” The Fly reported, “The analyst attributes this to content growth on the platform, a lack of competition for entertainment hours and spend driving churn lower, and more time being spent at home during COVID-19. Further, Terry believes consensus estimates for the second half of 2020 and beyond remain too low.”

Technical analysis

On July 10, Netflix stock closed 17.5% above its 20-day moving average of $467.18. It was 23.3% above its 50-day moving average of $445.04, and 33.7% above its 100-day moving average of $410.37. Netflix’s 14-day relative strength index score is 78, suggesting the stock is overbought.

Netflix stock has a lower Bollinger Band of $406.26, while its middle Bollinger Band is $467.18. On July 10, the stock closed near its upper Bollinger Band of $528.10, suggesting it’s overbought.

For more about NFLX, see Netflix Stock: 2 Things Investors Need to Know in 2020 and Investors Buy Netflix Shares in Wake of HBO Launch. Also, check out Jim Cramer Thinks These 5 Tech Stocks Can Make Good Money. Stay tuned to learn how Netflix performed in the June quarter.

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