Netflix (NFLX) – Shares in Get Netflix Inc.’s report rose after the close on Tuesday ahead of its highly anticipated second-quarter earnings report, as investors focused on the group’s plans to add ad support to its market-leading streaming service.
Netflix, which lost 200,000 subscribers in the first three months of the year, warned that it expects to lose another 2 million in the second quarter due to higher prices, increased competition and password sharing.
Earlier this week, the group addressed at least some of the problems by unveiling plans to raise prices in five Latin American countries for customers who access Netflix in more than one home.
Netflix is also partnering with Microsoft (MSFT) – Get Microsoft Corporation reports an ad-supported version of its service that will be “more integrated and less disruptive” than traditional TV.
“It’s early days and we still have a lot of work to do. But our long-term goals are clear,” Netflix said earlier this month. “Give consumers more choice and advertisers a premium, better TV brand experience. We’re excited to partner with Microsoft to bring this new service to life.”
Launching the service after years of delay by co-founder Reed Hastings doesn’t signify a sea change for Netflix, but it also marks its bigger streaming rival.
Walt Disney (DIS) – The Walt Disney Company report, which follows Netflix in new subscribers, announced late Monday that the company plans to garner a record $9 billion in ad spending in the upcoming fiscal year.
The ad buying was called “upfront,” indicating the group’s confidence in its expanding digital platforms, including ESPN and Hulu, and plans to launch a tiered service for its Disney+ streaming platform.
Cowen’s Netflix analyst John Blackledge estimated earlier this month that an ad-supported program could add 4.3 million subscribers in the U.S. and Canada, which would help the company grow to about 240 million globally by the end of next year.
“Connected TV advertising is still in its infancy in Latin America and (APAC), so the tier of ad support at launch may not matter,” said Justin Patterson, analyst at KeyBanc Capital Markets. “Sector Weights” Netflix stock valuation: “By contrast, the US and Western Europe are fairly developed (the US is significantly stronger), which gives Netflix more opportunities to improve. ”
Estimates vary on the so-called “cost per thousand” or CPM (an industry term for a thousand ad impressions) that Netflix can charge advertisers, but Patterson thinks it could be as high as $60. About double that of Roku (ROKU) – Get Roku Inc. reports can be changed.
The service is expected to cost subscribers about $10, compared to $15.49 for a standard plan and $19.99 for a premium Netflix subscription.
“However, it’s unclear whether this will only work for tentacle content like Stranger Things, or if it’s possible for smaller originals like Too Hot to Handle,” he added, noting “the need for growth of analysts are more likely to outpace licensing cost increases.”
Netflix’s first-quarter earnings were largely solid, with bottom-line earnings of $3.53 per share, well above Wall Street’s consensus forecast of $2.89 per share, and a 10% year-over-year increase in consolidated revenue in line with $7.87 billion, trailing only analysts’ estimate of $79.3 One hundred million U.S. dollars.
Netflix also said it expects free cash flow to be positive in 2022 and beyond, with free cash flow rising 15.9% to $802 million in the first quarter.
For the three months through June, Netflix is expected to report earnings of $2.95 per share, with revenue rising 9.5% year over year to $8.04 billion.
Netflix shares rose 1.24% in premarket trading, suggesting an opening price of $193.30 a share, a move that would still send the stock down about 67.8% so far this year.