Netflix (NASDAQ:NFLX) released its second-quarter results on July 16 after the market closed. The streaming giant’s earnings missed projections due to a one-time charge associated with research and development tax credits in California. Revenue, however, surpassed expectations as the stay-at-home orders led to outpaced subscriber growth.
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The company posted diluted earnings per share of $1.59, which reflected a gain from 60 cents per share reported in the same quarter last year. Revenue of $6.15 billion climbed roughly 25% on a year-over-year basis. Refinitiv had predicted EPS of $1.81 on $6.08 billion in revenue.
In a letter to shareholders, the company commented on how Covid-19 has affected its earnings and how the same would impact its future results:
“In Q1 and Q2, we saw significant pull-forward of our underlying adoption leading to huge growth in the first half of this year (26 million paid net adds vs. prior year of 12 million). As a result, we expect less growth for the second half of 2020 compared to the prior year. As we navigate these turbulent circumstances, we’re focused on our members by continuing to improve the quality of our service and bringing new films and shows to people’s screens.”
The company’s shares plunged more than 9% to $527.39 in after-hours trading following the earnings release in anticipation of slowing growth in the second half of 2020.
On the global front, the company added 10.09 million paid subscribers as more original shows and movies boosted growth. This exceeded the analysts’ prediction of 8.26 million.
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In a letter to shareholders, the company mentioned that Ted Sarandos has been appointed a co-CEO alongside co-founder Reed Hastings. Nonetheless, Ted would retain his current role of chief content officer and join the board. On the other hand, Chief Product Officer Greg Peters has been elevated to the position of Chief Operating Officer.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The company said it would not focus on its competitors and would stick to its strategy of "trying to improve our service and content every quarter faster than our peers. Our continued strong growth is a testament to this approach and the size of the entertainment market."” data-reactid=”29″>The company said it would not focus on its competitors and would stick to its strategy of “trying to improve our service and content every quarter faster than our peers. Our continued strong growth is a testament to this approach and the size of the entertainment market.”
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Netflix does not expect that the pandemic will have much of an impact on its slate of content for 2020. The current production slowdown on account of the outbreak would rather postpone its big titles towards the end of next year. Netflix projects that the total count of originals will be more in 2021 compared with 2020. It plans to include other movies and shows that it’s acquired in addition to its original content.
For the third quarter, Netflix expects revenue of $6.33 billion, which is below Refinitiv’s consensus estimate of $6.40 billion. Earnings for the same period are projected to be $2.09 per share vs. $2.01 expected by outsiders. The net subscriber additions are anticipated to be 2.5 million in the third quarter, while analysts are projecting the figure to be 5.27 million.
Disclosure: I do not hold any positions in the stocks mentioned.
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