Netflix Q3 earnings expectations

Yahoo Finance’s Emily McCormick previews Netflix’s Q3 earnings, the company’s first earnings release since the success of ‘Squid Game’.

Video transcript

KARINA MITCHELL: Well, Netflix out with earnings after the bell. Shares up about 18% year to date, flat as we look at them right now. That [INAUDIBLE] S&P up about 19% so far. One of the big questions, of course, is subscriber growth in a landscape that's getting more crowded. Here with a preview of what to expect is Yahoo Finance's Emily McCormick.

EMILY MCCORMICK: Well, of course, we are awaiting Netflix earnings results after market close today. And as you were mentioning, subscriber growth is really going to be that key metric that investors are looking at. We know that Netflix does tend to trade on that subscriber growth number out of earnings. So, really, a key focal point here after the bell.

Now, specifically, Wall Street is looking to see net subscriber additions reaccelerate to 3.7 million for the third quarter. That would be compared to 2.2 million subscribers added in the same quarter last year and the only 1 and 1/2 million subscribers that Netflix added in the second quarter this year.

Now, by comparison, Netflix had added a record 25.9 new users in the first half of 2020. When we look at what Netflix has added in the first half of this year, that was only just over about 5 and 1/2 million or so users. So really speaks to that slowdown that's occurred because of these tough comparisons to the first half of 2020, when stay in place orders had really driven a big uptick in new subscriptions for Netflix.

Now, new hit content is really expected to be the big driver of growth this third quarter, especially following the release of the Korean television show, "Squid Game." Now recall that just over the weekend, Bloomberg had reported that this series was expected to be worth nearly $900 million to the streaming giant after costing just $21.4 million to produce. Now a record 132 million people also watched the show in its first 23 days. That was a record and topped the previous viewership record following the release of "Bridgerton."

And one other thing that analysts have really been talking about is that given that "Squid Game" did launch at the end of the third quarter in September, this could provide a sustained boost to Netflix results into year end and into 2022, especially when we think about the rest of the content slate that Netflix has on deck as well, including the return of other popular series like "Stranger Things," "The Crown," and "Ozark." So, a lot of optimism baked in here as we head into Netflix's third quarter earnings results. We aren't seeing the stock doing a whole lot this afternoon, although it was up about 1 and 1/2% yesterday. Guys.

KARINA MITCHELL: Emily, I'm one of those--

BRIAN SOZZI: Emily, you've inspired me-- oh, go ahead. Go ahead, Karina.

KARINA MITCHELL: I was just going to say, I am one of those 132 million that binge-watched "Squid Game." Couldn't get enough of it.

BRIAN SOZZI: Yeah, no, I'm going to give it another try. As the overlords at Netflix know, I've only watched only seven minutes, but I'm going to-- you both have inspired me to give it another shot. Emily, I think you're also watching trends around the world. Obviously, Netflix is not just a US-focused company. Where else should investors be locked in on?

EMILY MCCORMICK: Well, Brian, you know, what's really interesting is, if we take a look at Netflix versus some of the other major US-based streaming players like Disney Plus, of course, HBO Max and all of those various other competitors here, Netflix does have a really major global footprint. And given that the overall subscriber base for Netflix is that more than 200 million paid users, a lot of this additional growth is coming outside of North America, where there is quite a bit of saturation here.

And if we take a look at how Netflix actually performed in the second quarter this year, the company actually lost 430,000 subscribers on net in the US and Canada in the second quarter, but in that same period, it gained more than 1 million in the Asia-Pacific region and about 190,000 and 760,000 respectively in Europe, the Middle East, and Africa and Latin America.

So really goes to show here that a lot of this growth is coming outside of North America, outside of its home market, although at the same time, the average revenue per user is much higher in North America as well. So, again, really speaks to the fact that monetization is still happening at a higher rate here in its home market, but a lot of the growth on the margin here in terms of those additional subscribers coming from international markets. Guys.

KARINA MITCHELL: A lot of investors waiting to see what the earnings look like when they come out. Emily McCormick, thank you so much for that preview.