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Investment Ideas Five things to look for in Netflix’s second-quarter report

Mike Blake/Reuters

When Netflix Inc reports second-quarter earnings on Wednesday, a big question is how the streaming giant will handle a slew of new competitors barging in to its territory.

Investors should watch for how Netflix responds to competition, its subscriber count and forecast, and any comments about global pricing, its shrinking library of licensed programming and its original-content strategy.

New competitors

Although the coming entry of Walt Disney Co., AT&T Inc. and Apple Inc. into the streaming wars could dampen Netflix’s U.S. growth, experts do not see this as a zero-sum game.

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Subscribers are likely to choose multiple online video options instead of picking just one. The Disney+ streaming service is expected to share 80 per cent of Netflix’s customers, said analysts at Raymond James and Associates.

“Netflix forms the central piece of the digital bundle,” the analysts said.

Netflix’s wide range of content keeps the company safe from being replaced, said Cowen analyst John Blackledge, who called fears of new competitors “overdone.”

Subscribers

The larger share of Netflix’s growth is coming from markets outside the United States. The company forecasts that it added 5 million paid streaming customers from April through June, with 4.7 million coming from international markets.

Some analysts believe that as more well-funded streaming services enter the market, Netflix’s subscriber growth rate will slow. The third-quarter forecast will be a key metric for shareholders.

International pricing

Netflix raised prices in Britain, Switzerland, Greece and Western Europe during the second quarter.

With more cash from higher prices, Netflix could use the money to secure new deals for original content or licensing contracts. Analysts said language options and localized content will have a huge impact on growth in international markets.

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Shrinking library

Hit shows Friends and The Office will leave Netflix in 2020 and 2021, respectively, putting more pressure on the company to entice fans with original programming such as Stranger Things and When They See Us. Investors should watch for the amount Netflix plans to spend on original programming and whether the company plans to close fewer licensing deals.

Original content

More original projects are coming to Netflix including partnerships with Grey’s Anatomy creator Shonda Rhimes.

“2020 will see the fruit of Netflix’s production deals,” said Justin Patterson, an analyst at Raymond James.

Investors should listen for how much users are streaming the originals compared to the licensed content.

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