Wall street analysts are of the view that the renowned streaming service Netflix (NASDAQ: NFLX) hasn’t had much to write home about as far as its 2nd quarter earnings are concerned.
Last year, with the COVID-19 pandemic surge and lockdown restrictions imposed pretty much everywhere around the world, Netflix’s subscriber tally across more than 190 countries `shot up well beyond 200 million. However, this boom seems to be all but over now.
The California-based company was only able to manage adding a meager 3.98 million subscribers in the first quarter of 2021, which was 2.31 million short of what analysts estimated and 2.02 million shy of the projection made by the streaming giant itself. This was the slowest beginning of the year for Netflix in 8 years.
For the 2nd quarter ending June 30, Netflix forecast that it would add a paltry 1 million subscribers, the smallest quarterly subscriber gain anticipated since the early days of the over-the-top content platform. The key factors behind this decline have been the extraordinary rise in subscriber addition in 2020 and the fact that the pandemic-related restrictions have led to a significant reduction in fresh content produced.
As a result of the recent slump in new subscribers, the company’s share price is experiencing an adverse impact in the short run. The company’s stock having gained in excess of 60% last year, has barely moved in 2021.
Having said that, there are some positives for long-run investors. With 208 million subscribers, the annualized revenue that the company will bring amounts to more than $20 million. In terms of subscribers, Netflix is still the No. 1 streaming service and the churn rate (number of users cancelling the service) was down from a year ago, in spite of an increase in the service’s subscription price. With the COVID-19 restrictions slowly easing, Netflix is aiming to end its production drought by investing $17 billion in creating new shows, compared to last year’s $12.5 billion. The large content budget is likely to lead to the company strengthening the interest of existing subscribers and being able to attract new ones as well. One more thing long-term investors should keep in mind is that Netflix will buy back up to $5 billion of shares and is no longer reliant on debt or outside financing to run its daily operations. This is a major development, considering that for years the streaming service has been funding production through borrowings.
The decline in Netflix’s subscriber gain comes as no surprise, as the company itself had been forecasting a drop in growth with people resuming their normal routines following the gradual lifting of COVID-19 restrictions in different parts of the world. The company’s subscriber growth will further slow in comparison to last year, but the streaming service is still on a great long-term footing with its cash and market position solidified. Long term investors have a decent buying opportunity with any post-earnings weakness in the company’s stock.