Netflix share price: what to expect from Q2 earnings

When is Netflix earnings date?

Netflix, the Nasdaq-listed, world-leading internet television network will report its second quarter (Q2) earnings for 2019 on Wednesday 17 July 2019.

Netflix earnings preview: what does ‘The Street’ expect?

Markets are expecting another strong quarter of revenue growth from Netflix from a slight uptick in the Average Revenue Per Client, resultant of price hikes imposed by the company in some of its key markets. However, higher corporate taxes and increased spend over the quarter are expected to weigh on group earnings.

Netflix has guided in their previous results release (Q1) that the company expects the following in Q2:

• Average Revenue Per User (ARPU) to increase by 2% year on year (YoY)
• ARPU excluding currency translations is expected to increase by 7% YoY
• Total revenue growth of 26% YoY
• Total revenue excluding currency translations is expected to rise by 32% YoY

The group does however expect profit margins to be adversely affected by the timing of spend in Q2, although operating margins in H2 are expected to improve to meet full-year guidance at 13%.

After simplifying the group’s corporate structure and because of US tax reforms, Netflix is expecting a higher effective tax rate of 48% in Q2, which is then expected to start normalising/lowering in the next financial year.

A consensus of estimates from Bloomberg surveyed analysts arrive at the following expectations for the Q2 Netflix results:

• Revenue $4.935bn (+26.2% YoY)
• Earnings per share (EPS) on an adjusted basis of $0.76 (-11.2% YoY)
• EPS Generally Accepted Accounting Principles (GAAP) of $0.57 (-28.7% YoY)

How to trade the Netflix results

A Thomson Reuters poll of 44 analysts maintain a long-term average rating of buy for Netflix (as of 10 July 2019), with 16 of these analysts recommending a strong buy, 14 recommending a buy, ten hold, two sell and two with a strong sell recommendation on the stock.

Broker ratings

Client sentiment shows 53% of IG clients with open positions on Netflix (as of 10 July 2019) expect the share price to rise in the near term, while 47% of IG clients with open positions on the company expect the price to fall.

Client sentiment

Netflix share price: technical analysis

The 20, 50 and 200-day simple moving averages (SMAs) show the short-, medium- and long-term trend bias for the share price of Netflix to be up. The Stochastic oscillator does however suggest that the share price of the company is overbought in the near term.

The trend indications take precedence over the overbought signal, although using the signals together, we would look for a short-term pullback in the Netflix price to find long entry, in line with the underlying uptrend.

The price action of Netflix shows the company to be trading at horizontal resistance, considered at the 384 level. Trend followers looking for a long entry might consider one of the following scenarios:

Upside breakout

A close above the 384-resistance level would consider an upside breakout. In this scenario 404.50 would be the initial upside target, a break of which (with a close above) would consider the 421 level a further upside target. Traders of this setup (should it manifest) might consider trailing a stop loss at the three-day price low.

Retracement to support

Should the price instead retrace from resistance (and overbought territory) at 384, trend followers might look to the confluence of horizontal and trend line support at 358.50 for long entry. In this scenario 384 would become the initial upside target, a break of which (with a close above) would consider the 404.50 level as a further upside target. Traders of this setup (should it manifest) might consider using a close below the low at 336 as a stop loss consideration.

In summary

• Q2 revenue is expected to increase by around 26%
• EPS on and adjusted basis is expected to decline by 11.2% YoY (Bloomberg consensus)
• Operating margins are expected to be negatively impacted by the timing of content spend
• Netflix will have a higher effective tax rate of 48% in Q2
• A Thomson’s Reuters poll of 44 analysts have an average long-term rating of buy for Netflix
• 53% of IG clients with open positions in Netflix expect the price to rise in the near term
• The charts show the price trend for Netflix to be up, although the share looks overbought in the near term
• Breakout traders might hope for a close above the 384 level for long entry
• Trend followers might hope for a pullback to a confluence of support at 358.50 for long entry