In the aftermarket hours on Thursday, July 16, Netflix share (NFLX) price tanked 9% as the company reports a modest growth forecast for the second-half of 2020, and probably lesser than what it attained during H1 2020.
OTT streaming giant Netflix Inc (NASDAQ: NFLX) reported its quarterly earnings for Q2 2020 on Thursday, July 16. The company reported a good jump in its customer base as more people stayed home during the coronavirus lockdown.
During Q2, Netflix added 10.9 million paid subscribers against the expected 8.26 million. The company also managed to beat revenue estimates. Netflix reported the actual revenue for Q2 at $6.15 billion against the expected $6.0 billion. However, the company missed its EPS that stood at $1.59 per share against the analysts’ expectations of $1.81 per share.
This drop in the earnings per share (EPS) came due to one-time charges paid in the form of research and development tax credits. The coronavirus pandemic situation has helped Netflix to improve its customer base significantly. As more people stayed home, the company saw its subscriber-base growing fast.
In its letter to shareholders, Netflix executives said that the first half of 2020 managed to pull-ahead its potential subscribers from the later part of the year. Hence the company expects fewer new subscribers and modest growth going ahead. The executives wrote:
“In Q1 and Q2, we saw significant pull-forward of our underlying adoption leading to huge growth in the first half of this year (26 million paid net adds vs. prior year of 12 million). As a result, we expect less growth for the second half of 2020 compared to the prior year.”
The company further added that “growth is slowing as consumers get through the initial shock of COVID and social restrictions. Our paid net additions for the month of June also included the subscriptions we canceled for the small percentage of members who had not used the service recently.”
Q2 Results Push Netflix Stock Down 9% After Hours
Shares of Netflix (NFLX) tanked 9% in aftermarket close despite the positive revenue growth and increasing subscriber base. In the aftermarket hours, the NFLX share was trading at $479 with a market cap of $231 billion.
Since the beginning of 2020, the Netflix share price has appreciated nearly 65% till now. While Netflix has seen a jump in the subscriber base, the major challenge ahead is fresh new content. The months-long hiatus of filming new content is like to put a pause in the release of new content.
Netflix’s newly appointed Chief Content Officer Ted Sarandos said that more time is currently available in curating scripts. Sarandos says that this will actually help shorten production times as operations resume back. However, Netflix says that the current production setbacks will push big-titles release to the end of 2021. But it added that “total number of originals for the full year will still be higher than 2020”. Besides, Netflix also plans to supplement its original content with other shows and films that it has acquired.
Speaking to The Guardian, eMarketer analyst Eric Haggstrom said that Netflix will probably hit 453.5 million individual users in 2020. This will be 9.1$ jump over the previous year. He stated:
“The pandemic and associated lockdowns have massively accelerated the shift from linear TV to streaming video,” Haggstrom said. “Looking forward, even as lockdowns are relaxed and new competitors begin to scale their services, Netflix will extend its lead as the first stop for entertainment.”
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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.