Netflix shares nudged higher Thursday ahead of the streaming group's second-quarter earnings report, set for after the closing bell, with investors focused on the revenue impact of its new ad-supported offering.
Netflix (NFLX) is undergoing the biggest revamp of its TV streaming app in more than a decade to try to keep its 270 million subscribers engaged for longer periods. It also wants Wall Street to focus on how satisfied its customers are more than how many subscribers the company brings in.
The group will stop reporting quarterly subscriber gains next year, having already dumped its regular forecasts for quarterly additions. It's looking to wring more cash from its lower-priced plans, which show ads within its streaming content.
Netflix in fact told investors in May that its ad-supported tier, which costs around $6.99 a month, topped 40 million active users that month, up from just 5 million over the year-earlier month.
Still, Wall Street at present remains focused on subscriber additions. Analysts expect Netflix brought in a net 4.82 million new users over the three months ended in June, a tally that would be the smallest in more than a year.
Netflix pushing into live events
That's still likely to help drive revenue 16% above the year-earlier quarter, however, to around $9.5 billion. Analysts also say the figure could rise as high as $9.8 billion over the three months ending in September as the group mulls new price increases to match recent moves by its competitors.
"In our view, recent price increases by competitors and ongoing low rates of churn support Netflix price increases over coming quarters," said KeyBanc Capital Markets analyst Justin Patterson, who recently lifted his Netflix price target by $22 to $735 a share. (Churn is the measure of subscribers switching to rival services.)
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"As pricing returns to a more normal cadence, we believe Netflix has ample room to sustain more than 10% annual revenue growth with 2% to 3% annual operating-margin expansion," he added.
Netflix is also looking to beef up its offerings of live programming, which are crucial to the growth of advertising-based video on demand. These include the addition of two National Football League games on Christmas Day and next year's launch of WWE "Raw" wrestling events.
In January Netflix agreed to pay TKO Group Holdings $5 billion for the streaming rights to "Raw," the WWE's flagship weekly wrestling program. Streaming is slated to start in 2025.
Emmy haul
"Netflix’s still limited foray into live major sports with Christmas NFL games complementing scripted WWE content and successful behind the scenes efforts including Drive to Survive and Break Point reinforces a view that streaming bundles will increasingly emulate the traditional linear bundle," said Benchmark analyst Matthew Harrigan.
Original content has also been increasingly important for Netflix, although its recent slate has been helped by shows that it licenses from mainstream networks as well.
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Last summer's strikes by both the the Writers Guild of America and the Screen Actors Guild hit Netflix hard, ultimately reducing its overall offering of TV and movie titles by around 15%, following at least a decade of increases. Netflix now looks to be focusing on quality over quantity.
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Netflix earned a total of 107 Emmy nominations this year for titles including "The Crown," "The Bear" and the controversial series "Baby Reindeer." Winners are slated to be announced Sept. 15.
Netflix shares were marked 0.36% higher in premarket trading to indicate an opening bell price of $649.82 each. That move would extend the stock's year-to-gain to around 33.5% and put it within touching distance of the all-time peak of $697.49 it reached earlier this month.
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