Netflix (NFLX) is scheduled to report results of its second fiscal quarter after market close on July 16, with a conference call scheduled for 6:00 pm ET. What to watch: 1. SUBSCRIBER SIGNALS: Netflix’s subscriber numbers are a closely-watched measure of the company’s growth trajectory. Last quarter, the company reported streaming net additions of 7.41M members, including first quarter U.S. additions of 1.96M and international additions of 5.46M members. For Q2, Netflix has forecast streaming net additions of 1.2M in the U.S. and international streaming net additions of 5.0M for an expected total of 6.2M members. Imperial Capital analyst David Miller recently told investors that he expects Netflix to report Q2 net subscriber additions of 6.11M, with the breakdown being 1.22M net U.S. additions, 5.05M net International additions, and the loss of 160,000 DVD-only members. B. Riley FBR analyst Barton Crockett recently said that searches for new Netflix shows slowed to flattish versus the year-ago period, and year-over-year growth in global searches for the term “Netflix” also slowed somewhat. He pointed out that this is the first time he has detected flattish growth since the “big originals ramp started.” Amid heightened expectations, the analyst finds the flattish search volume as “potentially cautionary.” Crockett reiterated a Neutral rating and $313 price target on Netflix shares. 2. UBS ‘HITS PAUSE’: On July 12, UBS analyst Eric Sheridan downgraded Netflix to Neutral from Buy, while raising his price target on the shares to $425 from $375, citing valuation. He also expressed the view that there is no “pronounced upside” expected to come with its second quarter results. The analyst believes his new rating now reflects the 117% year-to-date advance in Netflix shares and recommends “hitting pause on binge buying.” 3. BUCKINGHAM SAYS SELL: Even more bearish, Buckingham analyst Matthew Harrigan downgraded Netflix to Underperform from Neutral this morning. He estimates that the stock’s current price implies “optimistic” views of the company reaching 360M global members in 2025 and 505M by 2033 along with a long-term operating profit margin near 35%. International competitive intensity is increasing and Netflix will soon lose much outside content as the TV industry goes all-in on direct-to-consumer globally for content delivery, said Harrigan, who raised his price target on Netflix shares to $333 from $301. Citi analyst Mark May also says the near-term setup for Netflix shares may not be favorable given that valuation is at an all-time high. He adds that some third-party data providers have reportedly indicated that Netflix’s domestic Q2 subscriber growth could have fallen below expectations. May keeps a Neutral rating on the shares.
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