Pacific Crest Expects Netflix's Q2 To Be 'At Least In Line,' Reiterates Overweight

Netflix, Inc. NFLX is scheduled to announce its second quarter financial results July 15. Pacific Crest analysts Andy Hargreaves and Evan Wingren expect the company to come in “at least in line” with their expectations and normal seasonality.

A Peek Into Results

For the second quarter, the experts anticipate at least 600,000 net subscriber additions in the U.S., and 1.9 million additions internationally, in line with management’s guidance. While the free trial of HBO Now has the potential to be “modestly disruptive to Q2 domestic sub growth,” they believe that “the strong rollout of a variety of original programming” in the first half of the year should help mitigate the impact.

For the third quarter, the firm expects subscriber guidance to “reflect adoption rates that are consistent with recent history, which would imply continued incremental penetration of existing markets.”

International Expansion

A few international launches expected for the third quarter were announced for the fourth. This means that many third quarter estimates could be too high. Seeking to reflect the launch of Netflix in Southern Europe and Japan, both scheduled for the fourth quarter, third quarter international subscriber addition estimates were cut from 2.7 million to 2.02 million. On the other hand, fourth quarter expectations rose from 3.38 million new subscribers to 3.64 million.

The analysts still assume the third quarter should witness increased content spending ahead of the new market launches. However, they expect a portion of the expenses originally planned for the third quarter to now get pushed into the following one.

A Long-Term Bet

While Pacific Crest assures that Netflix shares “currently capture the majority of potential upside in the next six to 12 months,” they see plenty of long-term upside driven by international subscriber growth and superior incremental margins supported by global license deals.

Pacific Crest maintains an Overweight rating and $665 price target on Netflix.