Netflix is expected to report modest third quarter earnings on Monday because of price increases for legacy customers and growing competition to its streaming TV and movie business, such as the Summer Olympics.
Analysts surveyed by Bloomberg estimate that Netflix will report adjusted earnings per share of $0.135, GAAP earnings per share of $0.054 and total revenue of $2.28 billion.
For last year’s third quarter, Netflix reported adjusted earnings per share of $0.12, GAAP earnings per share of $0.07 and revenue of $1.74 billion.
Analysts at FBN Securities are concerned about Netflix’s slowing subscriber growth from its higher prices and increasing competition – they wrote in a recent note – and subsequently lowered their stock target price of $115 to $95.
FBN Securities expectations for this year’s third quarter are roughly at consensus.
In a disappointing second quarter, Netflix reported an addition of 1.7 million subscribers (160,000 in the U.S. and 1.52 internationally), which fell short of its expectations of 2.5 million new members.
The company has been pushing for global expansion, offering its services to 130 new countries in January. Reed Hastings, president and CEO of Netflix, ultimately plans for 80 percent of subscribers to come from outside of the U.S. but Netflix has been unable to enter China, one of the biggest markets in the world.
Hastings said that entry into China “doesn’t look good” at a news conference last week. “There is so much opportunity for us in India, Poland, Turkey, Latin America and Vietnam,” he said.
Stifel analysts estimate that Netflix added 305,000 domestic subscribers in the third quarter, just above the company’s own forecast of 300,000. Both Stifel analysts and Netflix estimate an addition of 2 million new international subscribers.
Two challenges for this past quarter include the 2016 Olympic Games in Rio, which may have drawn viewers away from Netflix to cable television, and the “un-grandfathering” process, or ushering legacy customers to the new cost of service of $9.99 per month. All of the customers who have been paying $7.99 or $8.99 per month will be forced to pay the new higher price, unless they discontinue using Netflix.
David Wells, chief financial officer at Netflix, said in an investor relations’ call that this churn will be finished by the end of fourth quarter.
Despite a potential loss of subscribers, Netflix is still viewed by analysts as a stock to buy.
“We believe Netflix will emerge from this un-grandfathering cycle with a strong setup for subscriber growth boosted by its expanding lineup of both global and local original content,” Stifel analysts said in a report.
Netflix continues to pursue more new global subscribers and its goal of having 50 percent original content.
The company recently struck a deal with Univision to air its original series, “Narcos,” and co-produce a series called, “El Chapo.” It also partnered with iPic Entertainment to show original Netflix films for the next year in iPic movie theaters in NYC and LA.