Netflix won’t save Wall Street’s June quarter earnings season, despite a small beat on new subscriber numbers for the June quarter.
There was nothing wrong with the result – financially the company is doing very well, but for it wasn’t enough for that confidence-boosting surge in momentum Wall Street has been looking for after earnings from the big banks fell flat last week.
Thanks to the invidious comparison with the June quarter of 2020 when the company added a record 10.1 million new subscribers around the world, Netflix could only manage 1.54 million, taking the total to 209 million worldwide.
While that was better than the one million forecast made in the April March quarter report, it was a touch short of market hopes and was the lowest so far for new subscriber additions in a quarter.
This saw the shares slide 4% when the results were released after the market closed at 6am Sydney time. They later recovered most of the losses to be down 0.2% (after a 1.2% fall in normal trading ahead the release of the results).
The loss in normal trading came as Wall Street recovered most of Monday’s losses in a solid day’s trading, making the weakness in Netflix shares a standout.
With the lack of any push from Netflix, Wall Street will now be looking to Amazon, Apple, Facebook and Alphabet (Google) to produce the stunning report in the next three weeks to re-ignite momentum among investors.
So far as its financials are concerned, Netflix was solid – revenue for the quarter was $US7.34 billion up 19% on the June, 2020 quarter and slightly higher than market forecasts while net earnings totalled.
Net profit for the quarter was $US1.353 billion, almost double the $US720 million in the same quarter in 2020.
A near doubling in net earnings on a 19% rise in revenue points to the benefits of a margin fattening price rise, and the continuing benefits of scale at Netflix.
That’s even as Netflix rides a sharp slowdown in new customers after a boom in 2020 fuelled by the pandemic-driven lockdowns around the world. As well competition has picked up with Disney +, Peacock, Paramount+, Prime Video (Amazon) and Apple TV drawing subscribers. And there’s a return to cinemas as they re-open.
But the re-opening of US society is under threat from the surge in new infections of the Delta variant of Covid which is making inroads in the US (California is seeing more than 4,000 new cases a day with 83% of all new US infections blamed on the variant).
A weak subscriber forecast for the September quarter didn’t help – the company estimated it will add 3.5 million customers from July through September. Wall Street had forecast of 5.5 million.
In Tuesday’s release, Netflix confirmed it is expanding in other businesses. It has hired a new executive to run a video-game unit and launched a website to sell merchandise tied to its “Lupin” series and other hits.
“We view gaming as another new content category for us, similar to our expansion into original films, animation and unscripted TV,” the company said in a letter to shareholders. “Games will be included in members’ Netflix subscription at no additional cost similar to films and series. Initially, we’ll be primarily focused on games for mobile devices.”
