The pressure to perform can follow an earnings report despite beating expectations. Netflix is fully aware of that after releasing its Q2 numbers, pushing analysts and investors alike to wonder if its streaming services can continue broadcasting increased revenue.
A surface-level recap of Q2 numbers revealed the following:
- Revenue was $11.08 billion, which was a 17.3% year-over-year increase.
- Earnings per share (EPS) was $7.19, beating its own forecast of $7.03 — a year-over-year increase of 47%.
Looking ahead, Netflix gave positive guidance, with expected revenue to hit $11.53 billion, and EPS to be $6.87 for Q3. Both of these projections would ultimately beat Wall Street forecasts. But we will know in mid-October when the company announces its Q3 earnings.
Right now, the stock is up over 30% year-to-date. Sustaining that momentum will hinge upon whether Netflix can continue its stream of revenue.
Global Growth Momentum
One of the major catalysts for future revenue will be the economic forces attributed to a weakening dollar. With the expectation that the Federal Reserve will cut rates through the rest of the year, it works in favor for Netflix forecasts. That also feeds into its global subscribership, which also grew by 32 million in Q2. That global growth outpaced its fiercest competitors also vying for worldwide streaming dominance, such as Walt Disney and Warner Bros Discovery.
“The majority of the increase in our revenue forecast reflects the recent depreciation of the US dollar vs. most other currencies, with the balance attributable to continued business momentum driven by solid member growth and ad sales,” Netflix noted during the Q2 earnings release.
Another positive factor working in favor of Netflix is that the 24-hour news cycle surrounding tariffs won’t affect its revenue. Nonetheless, analysts remain skeptical about whether the online streaming giant can continue to beat projections.
“Despite a good quarter and positive tone that business trends remain strong, shares are up 42% year-to-date (around mid-July) and expectations were high,” said William Blair analyst Ralph Schackart.
Cautious Optimism
Various factors will affect whether Netflix can keep the revenue streams flowing with the same velocity. As such, cautious optimism is warranted.
The company did increase prices across the board late last year. But it doesn’t seem to be affecting revenue due to lost subscribers. Its ad-supported plan went up $1, but is still competitive relative to its peers.
The economy in general will also remain a factor. The Consumer Price Index rose 0.3% in June, reflecting the largest rise since January. Whether this affects subscribership remains to be seen, as consumers look to cut costs, snipping the nonessentials from their budgets.
“Similar to last quarter, we’re carefully watching consumer sentiment in the broader economy,” Netflix co-CEO Greg Peters said on the earnings call. “But at this point, really nothing significant to note in the metrics and the indicators that we get directly through the business.”
2 Options to Trade Netflix
Netflix has been on a tear — up close to 100% for the the last 12 months, and near 40% this year. If the bullish momentum continues, traders can use the Direxion Daily NFLX Bull 2X Shares (NFXL) if they wish to double up on exposure. This allows traders to maximize their profitability potential without the use of a margin account or purchasing extra shares.
Furthermore, they can also play the bearish side of the trade with the Direxion Daily NFLX Bear 1X Shares (NFXS). Whether it’s a negative earnings report or other news-related items that apply downward pressure on prices, having the ability to trade the downside offers flexibility. Traders can use NFXS as a sole position to profit from the stock price falling or as a hedge via a pairs trade with NFXL
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