Netflix earnings have been one of the worst bets for investors since the start of 2020, which may make any potential buyers cautious ahead of the streamer’s second quarter report on Tuesday. In the 10 quarterly reports that Netflix has issued since the end of 2019, the company’s stock has dropped the next day nine times, according to data from Bespoke Investment Group. The average next day move has been -7.3%. Source: Bespoke Investment Group The first quarter of 2022 , reported in April, was particularly bad for Netflix. The stock plunged 35% in one day after the company reported a miss on revenue and and a surprise loss of subscribers. Netflix said it expected to lose another 2 million subscribers in the second quarter and announced that it was looking at an advertising-supported tier, reversing a long-held aversion to ads. Netflix had another shocking drop in January, when the stock tumbled more than 21% after fourth-quarter earnings. And even with the new season of “Stranger Things” hitting Netflix during the second quarter, Wall Street analysts seem skeptical that the company is poised to reverse that trend this week. “While our analysis of [monthly active user] data implies 2Q22 net adds of -1mm vs guidance of -2mm, we’ve seen the correlations break down more recently and don’t have the conviction to move estimates outside of the guidance range. We also have a downside bias on H2 estimates, including sub growth pressure and an F/X headwind to financials. We think investors remain in Wait & See mode on NFLX,” Wells Fargo analyst Steven Cahill said in a note on July 13. Historically, subscriber growth has been a key metric each quarter for Netflix. But with the company already guiding for a loss of subscribers in the second quarter and investors increasingly focused on next steps, like the development of an advertising tier and a crackdown on password sharing , management’s outlook and commentary could be the major area of focus this time. The recently announced partnership with Microsoft , for example, is sure to be a topic of conversation on the earnings call. However, Credit Suisse analyst Douglas Mitchelson said in a note to clients late Monday that there will likely be too many long-term questions for Netflix to rebound this week . “This quarter we would suggest the outstanding questions surrounding Netflix will remain unanswered. Its minimal FCF generation hinders taking a value stance on the shares, while a substantial rebound in subscriber growth in future quarters will require some combination of faster marketplace growth, viral content success, and lack of competitive impact – each of which is uncertain at this point,” Mitchelson wrote. To be sure, a disappointing reaction to an earnings report does not mean Netflix is necessarily bad for long-term investors. Guggenheim analyst Michael Morris, who has a buy rating on the stock, said in a note to clients on Monday that the ad-supported tier is one of the best prospects for a rebound in Netflix’s stock. “We believe there is significant skepticism in the investor community that Netflix will be able to drive incremental value with an ad-supported tier, creating opportunity on the long side if the company performs as we currently forecast,” Morris wrote. —CNBC’s Michael Bloom contributed to this report.
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