With Netflix's (NFLX) stock up about 70% on the year heading into Thursday's Q2 report, markets will be looking for the streaming giant to once more share strong subscriber growth numbers.
Among analysts polled by FactSet, the consensus is for Reed Hastings' firm to post Q2 revenue of $6.09 billion (up 24% annually) and GAAP EPS of $1.81. However, the company's subscriber growth numbers -- both what it reports and guides for -- typically have a much bigger impact on how its stock moves post-earnings than its revenue and EPS numbers.
In April, Netflix guided for 7.5 million Q2 paid net streaming subscriber adds -- down from a massive Q1 print of 15.77 million -- while admitting that the outlook was "guesswork" given the unpredictability of the environment it was dealing with. With streaming activity still at elevated levels thanks to COVID-19, Wall Street is probably looking for a higher figure.
The FactSet consensus is for 8.26 million Q2 net adds, and informal expectations might be higher still. For Q3, the consensus is for 5.27 million paid net adds.
I'll be live-blogging Netflix's report, which is expected after Thursday's close, along with an "earnings interview" that's set to go up on YouTube at 6 p.m. Eastern. Here are some things to keep an eye on.
1. Second-Half Growth Expectations
Three months ago, Netflix tried to temper second-half subscriber growth expectations: The company said it believed some of the lockdown-driven subscriber growth it was seeing will ultimately act as a pull-forward of sign-ups it would have seen later, and also pointed out that (unlike in 2019) new seasons of Money Heist and Stranger Things won't be arriving in Q3.
Any new commentary that Netflix shares about second-half expectations will be closely watched. For now, the consensus is for the company to add about 12 million paid streaming subs during the back half of the year, with 5.27 million adds expected for Q3 and 6.69 million for Q4.
2. Regional Subscriber Growth and Viewing Trends
Netflix registered strong Q1 subscriber growth in all four of its geographic reporting segments. With lockdowns having eased in some parts of the world and still very much an issue in other parts, it's worth watching what Netflix reports and says about how sign-ups and viewing activity are trending in areas that have seen major reopenings versus areas that haven't.
For Q2, the consensus is for Netflix to add 996,000 paid streaming subs in North America, 3.47 million in EMEA, 1.63 million in Latin America and 2.18 million in the Asia-Pac region. For Q3, consensus estimates are respectively at 241,000, 2.56 million, 1.17 million and 1.44 million.
3. Comments About Filming Restarts
Relative to many other media companies, content production halts aren't having a major near-term effect on Netflix's release schedule. In April, the company said that its 2020 slate of original series and films had already largely been shot, and that it was "pretty deep" into work on its 2021 slate.
Nonetheless, Netflix has been working in recent weeks to restart production for some projects, particularly in Europe. The company has said it plans to restart filming The Witcher in the U.K. on Aug. 17, and that Stranger Things is "tentatively" set to restart filming in Georgia on Sept. 17. More details might be shared on Thursday about how much production work Netflix expects to have underway in the coming weeks.
4. ARPU Growth
Netflix's monthly streaming average revenue per user (ARPU) rose 8% annually in Q1. 2019 price hikes carried out in the U.S. and elsewhere provided a lift. However, heavy late-quarter paid subscriber growth was a headwind, since Netflix didn't record a full quarter of revenue from the new subs, as was a strong dollar.
The fact that Netflix has now recorded a full quarter of revenue from its Q1 paid adds (provided they didn't cancel) should provide a boost to Q2 ARPU. On the flip side, the passing of the 1-year anniversary of Netflix's early-2019 U.S. price hike will be a headwind.
5. Free Cash Flow Guidance
With production halts reducing its near-term content spend, Netflix said in April that it expects to burn $1 billion or less in cash this year, after having previously forecast $2.5 billion in 2020 cash burn. The company might revise its free cash flow guidance again in its Q2 report, to account for both current subscriber growth trends and production activity.
6. Viewing Stats for New Content
Over the past few quarters, Netflix has been sharing viewing stats for recently-launched originals within its shareholders. For example, in April, the company said that 64 million "member households" watched Tiger King during its first four weeks of availability, and that 85 million watched action comedy film Spenser Confidential. More stats should be shared in its Q2 shareholder letter.