Netflix (NFLX) -) shares moved lower in late Wednesday trading with investors looking keenly ahead to the streaming media group's third quarter earnings slated for after the closing bell.
Analysts expect the group to post a bottom line of $3.49 per share, up 12.6% from the same period last year, with revenues rising around 7.7% to $8.55 billion.
Higher prices, which Netflix unveiled earlier this year, as well as a crackdown on password sharing – which now includes a $7.99 surcharge for away-from-home users – will explain a good portion of the gap between earnings and revenue growth rates, with Netflix also holding back on new content investment amid the ongoing Screen Actors' Guild strike, which began in early July.
Netflix, which no longer provides specific guidance on new subscriber additions, forecast third quarter earnings in the region of $3.52 per share and revenues of $8.52 billion in late June.
Reports from the Wall Street Journal suggest Netflix is looking to boost prices for its ad-free service, currently pegged at $15.49, starting with U.S. and Canadian subscribers, but will likely wait until the labor dispute is concluded.
Pricing changes could offset some of the concern investors took from comments made by CEO Greg Peters at a Goldman Sachs media conference last month, when he appeared to prioritize market share growth over profitability.
"Our sense is that many investors are viewing near-term trends as incrementally unfavorable, reflecting an original content air pocket forming around strikes, FX headwinds, recent margin commentary at conferences, and an ad business that is taking longer to ramp than investors perceived," said KeyBanc Capital Markets analyst Justin Patterson.
"In our view, Netflix’s commentary on margins or ad timelines is not overly surprising and there is an argument that industry structure is becoming more favorable as Netflix augments originals with library content from competitors," he added.
Subscriber growth, then, is likely to prove key to the market reaction to Netflix's third quarter update, following mixed summer data that underscored the impact of its new password-sharing restrictions.
Matthew Harrigan, an analyst at Benchmark who carries a 'sell' rating on Netflix stock with a $325 price target, see's "moderate upside" risks to his forecast of 5.8 million in new subscriber additions,
"Given the company’s 238 million installed base as of June 30, diminutive variations in churn can significantly affect delivery, although subjectively we believe the delivered number could exceed 6 million – consistent with management’s expectations for gradual benefits from its ad tiers and paid sharing initiatives rather than a dramatic step function change," Harrigan said.
Netflix shares were marked 3.03% lower late Wednesday trading to change hands at a session-low of $344.93 each.
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