What the Street is expecting from Netflix’s third quarter

Netflix is set to report its third quarter earnings report after hours on Tuesday. Consensus analysts are expecting strong third quarter earnings results, with its sales growing 22% over last year and 3.3 million in new paid streamers (per Bloomberg data). Yahoo Finance’s Final Round panel discuss what to expect from the streaming company’s third quarter.

Video Transcript

SEANA SMITH: But speaking of outperformers this year, Netflix-- it's another big winner in 2020. Shares up more than 60% since January 1st. The streaming giant set to report earnings tomorrow after the bell. Ines, it seemed like analysts were tripping over themselves last week, raising their price targets ahead of these results. We had Canaccord Genuity, KeyBank, Morgan Stanley among them.

What are you expecting to see tomorrow? And of course, the big question is, whether or not it's going to live up to expectations and whether or not it's going to please the market. Because we've seen a number of companies' top the Street's earnings expectations, yet the stock has sold off.

INES FERRE: Yeah, that's right. And it's fair to say also that Netflix-- I mean, it's flat right now, but today, it was in the green. And analysts have been, as you mentioned, at least three of them very bullish on Netflix, despite the fact that Netflix has been adding decelerating numbers of subscribers to 2020.

I think that guidance for the fourth quarter is going to be key. Going into 2021 will be key as well. But the subscriber growth for last quarter is going to be something that they will be looking at.

But even though you have-- even if you do have decelerating subscriber growth, I think that these analysts that have been looking at this stock are really looking at it long-term, thinking, look, if Netflix will raise its prices on subscribers by $1 to $2, you're still going to have subscribers sticking with Netflix, sticking with the streaming giant. And even after these stay-at-home restrictions ease, they will still stay with Netflix.

It seems to be that these analysts feel like, as far as the streaming giants are concerned, it's Netflix's world. Everyone else is living in it, even though you do have the likes of Disney Plus, which are doing well, and other streaming giants that-- or streaming companies that are also trying to encroach into its space.

SEANA SMITH: Yeah, Ines, it's interesting how-- what you were just saying about competition. Because, Dan Roberts, you cover a lot of Netflix's competition, particularly Disney Plus and the outperformance that we've seen there, just in terms of their subscriber numbers since the launch of the product.

And Canaccord, in their note, was basically brief iterating what was just talking about, saying that Netflix's year long headstart in the billions that they've already invested to build out their library of original content, that that's going to be a very important competitive advantage for the company. And maybe we're actually making too much of all the competition out there.

DAN ROBERTS: Well, that's been a popular take for a while, right, is that the king stays the king, and Netflix wears the crown, and that it had a real head start, which it did. I mean, that's just-- that's facts, objectively. Now the question is, how long does that headstart keep it ahead, you know? And maybe it's been a little bit kind of overhyped, how much it needs to worry about the competition.

That said, any smart company is aware of what the others are doing. And that kind of runway, that lead that Netflix had, well, you know, it's still kind of the kitchen sink option. I still see it as the de facto leader. It's sort of like table stakes. You have Netflix, and then the question is, what else do you have?

But that said, look, last week on this show, we talked about a note on Disney that was basically pointing out that even though it's not an apples to apples comparison, if you include Disney's networks and other things besides just Disney Plus, Disney is actually spending more on content in 2020 than Netflix is, which is remarkable. And I feel like I was a little bit undercovered, underpaid attention to.

Again, it's not apples to apples. But everyone loves to talk about how much Netflix spends on original content. And they say, is it too much? Is it too much? Well, Disney is spending a lot on content. And this note that we talked about last week was saying basically, Wall Street likes that.

And because of that reorg, more of that spend on content is going to shift directly to the streaming platforms, which, as I wrote, it's not just Disney Plus. That's the glitz and the glam and the sexy one, but there's also Hulu, and there's also ESPN Plus.

So, you know, Disney is a threat and in just two years. I mean, two years ago, Disney didn't have any of those. It wasn't the majority owner of Hulu. It hadn't launched ESPN Plus. It hadn't launched Disney Plus. And in just a matter of two years, it has become one of the top three streaming giants, along with Amazon Prime.

So, you know, it's a threat. How much of a threat? Mm, I wouldn't be super worried about Netflix anytime soon. It's really got that kitchen sink. And I know the knock on Disney, too, is, it's all Disney stuff. It's all Disney IP, which I've always seen as an asset.

But there are people who, you know, if they're trying to frame, oh, here's why Netflix is ahead and doesn't need to be worried, they say, well, all the Disney content is just Disney's own stuff. So you know, there's something for everyone. And at this point, almost everyone has at least a few of these subscriptions.