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Netflix’s Q2 Report Raises Hopes Despite Revenue Miss

Story Highlights

Netflix’s Q2 report shows there is still much work to do. For critics, however, the results show that it may be too soon to rush to the conclusion that the streaming giant’s best days are behind it. 

Netflix (NFLX) reported Q2 2022 results that showed the company lost fewer subscribers than expected. As a result, Netflix shares jumped 5.6% in regular trading on July 19 and advanced a further 8% in the extended session.

Earnings Numbers at a Glance

Revenue rose 8.6% year-over-year to $7.97 billion but still fell short of the internal projection of $8.05 billion and missed Wall Street’s expectation of $8.04 billion. Netflix explained that unfavorable foreign exchange rates due to a stronger U.S. dollar reduced $339 million from its top line. The EPS of $3.20 improved from $2.97 a year ago, beat the internal projection of $3.00, and exceeded Wall Street’s expectation of $2.94.

Subscriber Metrics Impress Despite Loss

Netflix shed 970,000 subscribers in the second quarter. While that was more than 200,000 subscribers it lost in Q1, it turned out to be significantly smaller than the two million subscribers the company had feared it would lose.

Upbeat Q3 Outlook

Netflix anticipates revenue growth of 4.7% year-over-year to $7.84 billion in Q3. It expects EPS to be $2.14. In what would mark a turning point after quarters of losing members, Netflix expects to add one million subscribers in Q3.

Ad-Supported Plan and Password Sharing Crackdown

Netflix plans to launch its ad-supported plan in early 2023. The company tapped Microsoft (MSFT) as the technology partner for the ad-supported offering. The company is also working on getting people who currently enjoy its service for free to start paying for it. Netflix estimates that more than 100 million households currently stream shows for free through password sharing. 

Analysts Maintain a Hold Stance

On July 19, Piper Sandler analyst Thomas Champion reiterated a Hold rating on Netflix stock but raised the price target to $215 from $210. The analyst’s new price target indicates 6.6% upside potential.

The stock has a Hold consensus rating, based on seven Buys, 16 Holds, and six Sells. The average Netflix price target of $234.74 implies 16% upside potential to current levels.

TipRanks’ Smart Score Suggests In-Line Performance for NFLX Stock

According to TipRanks’ Smart Score system, Netflix gets a seven out of 10, which indicates that the stock is likely to perform in line with market averages.

Key Takeaway for Investors

Netflix’s Q2 report was mostly a mixed bag, with revenue missing expectations but earnings and subscriber metrics surpassing targets. With fears of a recession looming, there may be more struggles ahead for businesses like Netflix. However, the latest report has raised hopes that Netflix is not in a terminal decline, as some investors may have feared after the stunning subscriber loss in the first few months of the year.

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