Wall Street Breakfast: Netflix Picks

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Wall Street Breakfast: Netflix Picks
Wall Street Breakfast: Netflix Picks

There was a lot of positive momentum going into yesterday’s quarterly report from Netflix (NFLX), as stocks soared in a broad-based rally with earnings season not as worrisome as initially feared. Netflix benefited from the sentiment by climbing 5.6% during the session, and tacked on another 7% AH to firmly trade above the $200 level.

 

There had also been some alarm about a saturated streaming market and price hikes during a period of inflation, but Netflix was able to assuage those concerns with an upbeat outlook of an imminent comeback.

By the numbers: The streaming pioneer saw a net drop in 970K subscribers in the second quarter after warning shareholders of an enormous 2M figure plunge. It’s also forecasting a return to growth in Q3, with guidance of 1M net additions. Netflix further beat profit expectations, reporting EPS of $3.20 per share vs. expectations for $2.95 per share, on revenues that largely came in line with expectations at just under $8B. While forex effects were worse than expected (Netflix makes about 60% of its money outside the U.S.), revenue growth was 9% but would have been 13% on a constant currency basis.

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“Losing a million [subscribers] and calling it success is tough, but really, we’re set up very well for the next year,” co-CEO Reed Hastings said on a conference call. “If there was a single thing [that boosted performance], we might say Stranger Things. We’re executing really well on the content side. We’re [also] in a position of strength given our $30B-plus in revenue, $6B in operating profit last year, growing free cash flow and a strong balance sheet.”

Outlook: Looking to reclaim subscriber growth, Netflix is targeting early 2023 for a cheaper ad-supported version of its service. It’s a big U-turn for a company that has spent years shunning advertisers in favor of a pure subscription model, and even recently inked a partnership with Microsoft (MSFT) to support the placement of such advertisements. The company also plans to earn more by limiting password-sharing, and disclosed some options for Latin America where it will offer new payment plans for users who split an account. On the earnings front today, electric vehicle maker Tesla (TSLA) will be the one to make headlines after the closing bell.