Why Shares of Netflix Fell by Nearly 5%?

In the previous session, shares of Netflix declined by 4.8%. The slump came after the firm’s second-quarter earnings report. Meanwhile, the stock was down by 4.1%.

The second-quarter revenue of Netflix increased by 19% compared to the same period a year ago. The revenue stood at $7.34 billion, slightly above management’s guidance of $7.30 billion and Wall Street’s consensus estimate of $7.32 billion.

Meanwhile, earnings increased by 90%, landing at $2.97 per diluted share, while the guidance target was $3.16 per share. Netflix’s operating profits also were below management’s official target. The company’s 1.54 million new paying subscribers surpassed the official goal of 1 million.

Netflix expects that it would add 3.5 million net new subscribers in the third quarter of 2021. Remarkably, an estimate is below the Street’s consensus estimate of at least 5 million new accounts.

According to the company, it would roll out a range of games as a free add-on to its video-streaming plans. Significantly, that would turn every Netflix device into a potential gaming platform.

Remarkably, it will start offering mobile games to subscribers for no additional charge to add value to the service. The second-quarter report also showed that subscribers in the U.S. and Canada slumped by 400,00. Analysts say that this is a sign that the business may be reaching a near-term saturation point. Significantly, adding video games may attract new customers while reducing churn.

Analysts Anticipate Netflix to Recover in The Second Half of This Year

The company had previously announced that COVID-related production shutdowns muted the first-half content slate. Analysts anticipate Netflix to recover in the second half of this year as new shows and movies appear on the service.

Netflix has maintained a wide subscriber edge in a crowded streaming market that includes competitors Walt Disney Co., Apple Inc., AT&T Inc., Comcast Corp., and Amazon.com Inc. despite a shortage of new content in the first half of the year.

Netflix plans to spend more than $17 billion in cash on content this year, and analysts say the returning shows will be a strong catalyst in the second half.

The firm expects to release new seasons of popular programming such as The Witcher and You and other popular movies.

Evercore ISI analyst Mark Mahaney thinks Netflix can increase to close to 500 million global subscribers by 2030. Meanwhile, Mahaney sees profits of close to $30 a share by 2025. He considers the stock can trade at 30 to 35 times that estimate and can double in price over the next three years.

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