Netflix Inc. (NFLX), Tuesday reported a third-quarter profit that fell short of Wall Street estimates, despite revenues increasing 23% and beating expectations. The online-video streaming giant’s subscriber additions were below outlook, sending its shares down 6% in the extended trading session.
Netflix added 2.20 million subscribers globally in the quarter, lower than its forecast of 2.5 million, to end the quarter with 195.15 million subscribers. The company added 0.18 million customers in the U.S. and Canada region during the quarter, while EMEA region subscriber additions were 0.76 million, LATAM were 0.26 million and APAC were 1.01 million.
Commenting on the lower subscriber additions, the company said, “We think this is primarily due to our record first half results and the pull-forward effect we described in our April and July letters.”
For the fourth quarter, the company expects to add 6.00 million subscribers.
Los Gatos, California-based Netflix’s third-quarter profit rose to $790 million or $1.74 per share from $665 million or $1.47 per share last year. On average, 38 analysts polled by Thomson Reuters expected earnings of $2.13 per share for the quarter.
Netflix’s revenues for the quarter rose 22.7% to $6.44 billion from $5.25 billion last year. Analysts had a consensus revenue estimate of $6.38 billion for the quarter.
The video-streaming service provider said average paid streaming memberships rose 25% and ARPU increased 1.6% year over year.
Looking forward to the fourth quarter, Netflix expects revenues of $6.57 billion and earnings of $1.35 per share. Analysts polled by Thomson Reuters currently expect earnings of $0.94 per share and revenues of $6.58 billion.
NFLX closed Tuesday’s trading at $525.42, down $5.30 or 1.00%, on the Nasdaq. The stock further dropped $27.72 or 5.28% in the after-hours trading.
A new earnings reporting season is underway. Obviously, the pandemic again will weigh heavily on results this quarter, but there could still be some bright spots. A few of the major banks that reported this past week showed promising results, so there is some optimism.
Here, 24/7 Wall St. offers a preview of what to expect from some of the most anticipated quarterly results due this week. We have included the consensus earnings estimates from Thomson Reuters and the stock price and trading history.
Be advised that the earnings and revenue estimates may change ahead of the formal reports, and some companies may change earnings dates as well.
Philip Morris International Inc. (NYSE: PM) is scheduled to report its third-quarter results early on Tuesday. The consensus estimates call for $1.36 in earnings per share (EPS) and revenue of $7.28 billion. Shares recently traded near $79 apiece. The consensus price target is $90.25, and the 52-week trading range is $56.01 to $90.17.
Snap Inc. (NYSE: SNAP) is set to release its third-quarter numbers after Tuesday’s closing bell. The consensus estimates call for a net loss of $0.05 per share and revenue of $549.99 million. Shares were trading below $28 apiece. The consensus price target is just $26.87, and the 52-week trading range is $7.89 to $28.56.
Netflix Inc. (NASDAQ: NFLX) is expected to report its latest results late Tuesday as well. The consensus estimates call for $2.13 in EPS and revenue of $6.38 billion for the third quarter. Shares were changing hands near $539 on last look. The analysts’ mean price target is $526.97, and the 52-week trading range is $265.80 to $575.37.
The Chipotle Mexican Grill Inc. (NYSE: CMG) third-quarter report is due late on Wednesday. The consensus estimates call for $3.40 in EPS and $1.59 billion in revenue. Shares traded late in the week above $1,342. The consensus price target is $1,310.26, and the 52-week range trading range is $415.00 to $1,384.46.
Third-quarter results for Tesla Inc. (NASDAQ: TSLA) also are expected after Wednesday’s close. The consensus forecast sees a net loss of $0.71 per share on revenue of $5.14 billion. Shares traded around $446 on Friday, and the consensus price target is down at $309.55. The 52-week range trading range is $50.04 to $502.49.
Southwest Airlines Co. (NYSE: LUV) is scheduled to report its third-quarter results on Thursday before the opening bell. The consensus estimates call for a net loss of $2.35 per share and revenue of $1.7 billion. Shares were last trading just above $39 apiece. The consensus price target is $45.47, and the 52-week trading range is $22.47 to $58.83.
Look for American Airlines Group Inc. (NASDAQ: AAL) to share its third-quarter numbers early on Thursday as well. The consensus estimates call for a net loss of $5.88 per share and revenue of $2.76 billion. Shares were trading just above $12, while the consensus price target is down at $11.25. The 52-week trading range is $8.25 to $31.67.
The report from AT&T Inc. (NYSE: T) is expected first thing Thursday morning. The third-quarter consensus estimates are $0.76 EPS on revenue of $41.61 billion. Shares traded above $27 late in the week, in a 52-week range of $26.08 to $39.70. The consensus price target is $31.96.
Watch for Sirius XM Holdings Inc. (NASDAQ: SIRI) to release its most recent quarterly results early Thursday. The consensus forecast calls for $0.05 in EPS and $1.94 billion in revenue for the third quarter. Shares traded shy of $6. The consensus price target is $6.96, and the share price has ranged from $4.11 to $7.40 in the past 52 weeks.
Mattel Inc.’s (NASDAQ: MAT) third-quarter report is due Friday morning. The consensus estimates call for $0.38 in EPS and $1.46 billion in revenue. Shares traded above $12 on Friday. The consensus price target is $13.08, and the 52-week range trading range is $6.53 to $14.83.
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Analysts estimate EPS of $2.12 vs. $1.47 in Q3 2019
Global streaming paid memberships are expected to rise sharply YOY.
Revenue expected to increase as consumers watch more streaming entertainment amid COVID-19 pandemic.
Netflix Inc. (NFLX) is among a group of tech companies that are not only unfazed by the COVID-19 pandemic, but actually are thriving because of it. Demand for Internet services is rising as many people remain confined to their homes, either for precautionary reasons or because of government restrictions. In this environment, demand has jumped for Netflix's streaming entertainment service, boosting its shares more than 65% in 2020.
Investors will be looking for just how much Netflix has benefited over the past three months when the company reports earnings on October 20, 2020 for Q3 FY 2020. Analysts expect the company to post robust revenue and earnings growth compared to the same period a year earlier.
Investors also will watch another key metric: Netflix's global streaming paid memberships. Growth in paid memberships accelerated in the last quarter due to the pandemic, and analysts estimate global streaming paid memberships will rise faster than the same quarter a year ago, but will decelerate from the most recent quarter.
Shares of Netflix have soared over the past year and have dramatically outperformed the broader market, especially since the pandemic-induced market crash earlier this year. The stock fell less than the broader stock market during the market's plunge in March, and has rebounded at a much faster pace to reach new highs. The company's shares have provided a total return of 90.7% over the past 12 months, well above the S&P 500's total return of 16.3%, as of October 15, 2020.
The stock plunged after reporting Q2 FY 2020 earnings in July that missed analysts' expectations by about 12%. However, Netflix posted earnings per share (EPS) that rose 165.0% (YOY), a sharp acceleration from the 106.6% growth reported in Q1 FY 2020. Revenue grew 24.9% YOY in Q2 compared to 27.6% in Q1. The company's shares have been quite volatile but have mostly rebounded since the Q2 report.
Analysts forecast another strong quarter in Q3 FY 2020, but expect both EPS and revenue growth to decelerate from prior quarters. EPS is expected to rise 44.0% YOY, which would be its slowest EPS growth since Q2 FY 2019. Revenue will grow an estimated 21.4%, its slowest quarterly pace in more than four years, and continuing a deceleration trend that began on a sequential basis after growth peaked at a rate of 31.1% in Q3 FY 2019.
Netflix Key Metrics
Estimate for Q3 2020 (FY)
Actual for Q3 2019 (FY)
Actual for Q3 2018 (FY)
Earnings Per Share ($)
Global Paid Streaming Memberships (M)
Source: Visible Alpha
Another key metric for Netflix, as mentioned above, is global streaming paid memberships. The metric measures the number of global users that have signed up and paid for a subscription to receive streaming services. Netflix's core strategy is to grow its streaming membership business globally as it is the company's primary source of revenue. That strategy is becoming increasingly challenging amid rising competition from new streaming services like Walt Disney Co.'s (DIS) Disney+, Apple Inc.'s (AAPL) Apple TV+, NBCUniversal's Peacock, and Quibi.
Netflix saw its global streaming paid memberships soar 27.3% to 192.9 million in Q2 FY 2020. It was the fastest pace of growth in paid subscriptions since at least Q2 FY 2017 as people confined to their homes amid the pandemic increased their consumption of streaming entertainment. Analysts are expecting continued growth for Q3 FY 2020, forecasting a 23.6% YOY rise in paid streaming memberships. While that would be a slight slowdown from the most recent quarter, the pace would be faster than the 21.4% growth in memberships in Q3 FY 2019.
One challenge the pandemic is posing to the streaming industry is the ability to produce content, since government restrictions have shut down film production in many parts of the world. However, this is also a point where Netflix may have a slight advantage compared to newer streaming services: it's backlog of already-produced content is slightly larger than companies that have just entered the space. That means Netflix will be able to offer fresher content to its current and potential subscribers, thus bolstering paid memberships, revenue and profits.
Netflix Inc. "Netflix to Announce Third-Quarter 2020 Financial Results." Accessed Oct. 14, 2020.