Netflix shares fall on weak subscriber outlook and EPS miss
Netflix adds 10m new subscribers in Q2, but EPS misses estimates. Shaun Murison applies technical analysis.
Netflix results have been met with an initial disdain by investors as the share price posted double digit decline shortly after their release. Revenue growth was strong although earnings have fallen short of analyst estimates.
Net paid subscription additions of more than 10m were well ahead of the groups Q1 2020 forecast of 7.6m. The figure brings a total of more than 26m net paid additions to the subscriber numbers for the first half of the year, which is more than double that of the first half of the previous year (2019).
The group has however forecast softer subscriber growth for the second half of the year, which has perhaps lent itself to the initial negative reaction by investors on the evening of the results release.
Some of the salient features of the financial results are as follows:
- Revenue increased by 24.9% year on year (y/y)
- Operating income $1.358bn (Q2 19 $707m)
- Operating margin 22.1% (Q2 19 14.3%).
- Net Income $720m (Q2 19 $271m)
- Diluted Earnings per share (EPS) $1.59 (Q2 19 $0.60)
In terms of Q2 2020 memberships:
- Global streaming paid memberships increased to 192.95m from 182.86m in the previous quarter.
- Global streaming net paid additions increased by 10.09m.
- The average revenue per user (ARPU) increased by 0.4% year on year.
Netflix: technical view
Negative reactions to Netflix results have often provided investors opportunities to accumulate shares at a more affordable price. The declines have always been recovered historically evidenced by the share price trading around its all-time highs currently. Now the share price of Netflix is retracing from a near term high and overbought territory. Trend followers might consider a pullback towards trend line support at 470 a long entry opportunity, before targeting a move back towards recent highs.
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