Netflix Q2 Earnings Preview

Talk of an ad-based subscription plan and a post-pandemic, inflation-diven drop in subscribers are top on the agenda for Netflix shareholders.

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What's moving the shares?

Since the last earnings, Netflix's Founder and CEO Reed Hasings said the company was considering an ad-supported subscription to get more people on board. As inflation bites, non-essentials such as entertainment subscriptions are likely to be the first to get axed.

This Q2 earnings release could be a time to announce the new program, potentially to compensate for worse than expected earnings and difficult guidance for the rest of 2022.

Earlier in the week, it emerged that Netflix had entered a partnership with Microsoft to develop the service. So, it appears that it's a go; but when the announcement is made, what it will do to the company's outlook remains to be seen.

Getting the outlook in order

Last quarter, Netflix guided subscriptions to be down for the second quarter in a row. Last time this was blamed on closing the service in Russia. Now the question is whether Netflix will raise its subscriber outlook for the third quarter.

The company has also been reportedly renegotiating contracts with studios, potentially to cut back on costs. Another area to pay attention to is churn, as the last quarter had the largest number of sign-offs since the start of the pandemic. Traders could be quite worried if Netflix continues to struggle to keep subscribers.

Expectations

Netflix is expected to report earnings of $2.96 on $8.0B; with the average of the forecasts essentially expecting earnings to remain flat compared to the prior year.

NFLX: Major resistance at $250

NFLX shares have been trading within a narrow consolidation between $160 and $210 over the past few weeks, as participants wait for the next breakout. The 20-week average of $250 lies above the top range, whereas on the flip side, $130 is major support that formed back in December of 2017.

If strength increases beyond these levels, $290, $330 and $460 are important levels bulls will watch. Inversely, sliding below $130 will expose $100. But with the stochastic flashing several reversal signals already, it is questionable where the stock will fall to ‘two digits’.

Source: Spreadex trading platform

Key takeaways

Netflix's CEO said the company would consider an ad-supported subscription to gain more users and potentially compensate for worse than expected earnings. It was reported that Netflix and Microsoft have partnered to develop the service, with the announcement having an impact on the stock’s price.

Netflix is predicted to be flat in the second quarter compared to the last while renegotiating contracts to cut back on costs. Traders could be worried if Netflix's subscription numbers continue to drop and will be paying attention to the Q3 subscriber outlook.