Netflix Earnings Preview; Streaming service expects 7.5M paid net additions

Streaming giant Netflix is set to report earnings after the bell. Yahoo Finance's Dan Howley and Jared Blikre break down the details with the On the Move panel.

Video Transcript

JULIE HYMAN: Well, shares of Netflix down about 8/10 of 1% right now. The company reports its earnings after the close of trading today. There has been some excited options activity, I guess you could say, around the company. The company itself has said it expects about 7 and 1/2 million global paid net additions in the past quarter. Jared Blikre, what have we been seeing in terms of setup for this company's earnings?

JARED BLIKRE: Well, we're looking at an implied move in the options market of about 5%. That's pretty much in line with what happens historically. And just looking at a five-day chart here on the YFi Interactive, they've gone pretty much sideways. Now over the last three months, we can see they have benefited from a rise generally in stocks, and also the safety play, being somewhat of a safety stock in these COVID times.

But this was a pretty big reversal candle just a few days ago. That was Monday. And what we've noticed this week is FAANG stocks in particular have been very weak. And so if this continues going forward-- and this has happened a few times in the past, during the COVID rally here since the March 23 lows. So if we do see the FAANGs underperform, I would be surprised to see Netflix be able to rise to new highs unless it really knocks it out of the park.

I think because of the fact that it's really one of these leading COVID plays, safety plays, expectations are going to be running high. And if they don't deliver the subscriber numbers, that's really going to be key. I think it was over 15 million additions last quarter. If they come short, I could see the stock selling off quite a bit.

DAN HOWLEY: Yeah, I see Netflix kind of dealing with two issues. One is the competition with Disney. And I think the fact that Disney is priced so aggressively, whereas Netflix, they have a good entry-level tier, but they do get more expensive as you kind of jump up. Those are kind of the competing interests there.

I don't see any of the other two players-- Peacock I don't see as being an issue. HBO Max I don't see as being an issue, because it's already so expensive that look, if you're going to be getting that, you're probably already going to have Netflix and be OK with that.

But really, I think what it's coming to is a distinction between spending time on your couch watching Netflix, and then on the other side we have gaming, which is growing a lot recently. And I think that a lot of people are kind of trying to divide their time between the two. And if you're spending a lot of money on a game or a lot of time on a game, you're not going to be spending a lot of time on Netflix.

And I think that's going to be kind of one of Netflix's biggest competitors going forward, is, believe it or not, the gaming industry, just because it can be such a time sink. And we're seeing more and more people jump into it as a result of the coronavirus. And look, the lockdowns that are going back into place, just going to have more people sitting there on the couch with their controller in hand.

ADAM SHAPIRO: Jared, the fact that Netflix-- and they're not alone in this-- has to delay, perhaps, production because of the pandemic, is there anything that investors should be looking for in the report about how long that can persist without having an impact on their balance sheet?

JARED BLIKRE: Yeah, what's the value proposition of subscribing? As a person who hasn't been a subscriber before to Netflix, what kind of content are you trying to get? And then if you're an existing subscriber, what's it going to take for you to jump off? It's very difficult to watch everything.

But I think the fact that now Netflix has so many competitors that have lifted their own material, like Warner Brothers, Disney, and just put it on their own platforms, that is a serious issue. What numbers specifically are we going to look for? I don't know exactly. But I think it's going to be a focus on the call.

And then just getting back to the subscriber adds, they guided for 7 and 1/2 million. They should be able to beat that. But the Street is looking for 10 to 12 million-- a little bit less than the 15 million they had last quarter.

But even if it's made-- even if they meet that number, most of these additions are in the international realm. And they're not monetized as well. Netflix charges a lower price, so that factors in as well.

DAN HOWLEY: Yeah, Jared, I think you kind of hit the nail on the head there with the international market being kind of exactly what investors are going to look at. That's what they generally look at now. The US market is so saturated. There's so many other options out there.

Again, I don't think people are going to be leaving Netflix in droves. But the international market is really what I think is going to be driving a lot of what investors look at. You're right, it's not as monetized-- monetized as well as the US. They offer lower rates to ensure people will actually sign up, entice those users. And then they can slowly increase them over time.

I think we talked about, obviously, whether or not an increase here in the US would drive people away. And I think most people are comfortable going up to a certain price point. But for the international market, it's not as comfortable when you look at the low entry levels that they're offering to then say, OK, well, we've had you for a year. We're going to bump up prices.

I think they have to wait a long time till they can actually monetize those the same way they monetize the US.

JULIE HYMAN: On the flip side, with no production, that means lower spending for Netflix, which might be welcome news for some investors, at least in the short term. So we'll be watching for those numbers after the close. Thanks, guys.