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Five things to look for in Netflix's second-quarter report

Five things to look for in Netflix's second-quarter report
FILE PHOTO: The Netflix logo is pictured on a television in this illustration photograph taken in Encinitas, California, U.S., January 18, 2017. REUTERS/Mike Blake   -   Copyright  Mike Blake(Reuters)
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By Arriana McLymore

NEWYORK (Reuters) – When Netflix Inc reports second-quarter earnings on Wednesday, a big question is how the streaming giant will handle a slew of new competitors barging in to its territory.

Investors should watch for how Netflix responds to competition, its subscriber count and forecast, and any comments about global pricing, its shrinking library of licensed programming and its original-content strategy.

NEWCOMPETITORS

Although the coming entry of Walt Disney Co, AT&T Inc and Apple Inc into the streaming wars could dampen Netflix’s U.S. growth, experts do not see this as a zero-sum game.

Subscribers are likely to choose multiple online video options instead of picking just one. The Disney+ streaming service is expected to share 80% of Netflix’s customers, said analysts at Raymond James and Associates.

“Netflix forms the central piece of the digital bundle,” the analysts said.

Netflix’s wide range of content keeps the company safe from being replaced, said Cowen analyst John Blackledge, who called fears of new competitors “overdone.”

SUBSCRIBERS

The larger share of Netflix’s growth is coming from markets outside the United States. The company forecasts that it added 5 million paid streaming customers from April through June, with 4.7 million coming from international markets.

Some analysts believe that as more well-funded streaming services enter the market, Netflix’s subscriber growth rate will slow. The third-quarter forecast will be a key metric for shareholders.

INTERNATIONALPRICING

Netflix raised prices in Britain, Switzerland, Greece and Western Europe during the second quarter.

With more cash from higher prices, Netflix could use the money to secure new deals for original content or licensing contracts. Analysts said language options and localized content will have a huge impact on growth in international markets.

SHRINKINGLIBRARY

Hit shows “Friends” and “The Office” will leave Netflix in 2020 and 2021, respectively, putting more pressure on the company to entice fans with original programming such as “Stranger Things” and “When They See Us.”

Investors should watch for the amount Netflix plans to spend on original programming and whether the company plans to close fewer licensing deals.

ORIGINALCONTENT

More original projects are coming to Netflix including partnerships with “Grey’s Anatomy” creator Shonda Rhimes.

“2020 will see the fruit of Netflix’s production deals,” said Justin Patterson, an analyst at Raymond James.

Investors should listen for how much users are streaming the originals compared to the licensed content.

(Reporting by Arriana McLymore in New York; Editing by Matthew Lewis)

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