Netflix Pressured After Soft Subscriber Guidance, Confirming Gaming Plans

Shares of Netflix (NFLX) are under pressure on Wednesday after the company reported quarterly results. While the streaming service giant's revenue and global paid net subscriber additions for the second quarter beat estimates, it reported worse than expected Q2 earnings per share and missed the consensus subscriber target for the third quarter with its guidance. Following the news, Evercore analyst Mark Mahaney called Netflix's second quarter results a "clearing event," while his peer at Piper Sandler told investors that his long-term thesis remains unchanged despite the company's "mixed" results. Still bearish on the stock, a Wedbush analyst said he views Netflix's third quarter guidance as "uninspiring" and called the company's foray into games "a misstep".

RESULTS: Aftermarket close on Tuesday, Netflix reported second-quarter earnings per share of $2.97 and revenue of $7.34B, with consensus at $3.15 and $7.32B, respectively. In its quarterly letter to investors, the company said it added 1.5M paid memberships in Q2, "slightly ahead of our 1.0m guidance forecast... We believe our large membership base in UCAN coupled with a seasonally smaller quarter for acquisition is the main reason for this dynamic. This is similar to what we experienced in Q2'19 when our UCAN paid net adds were -0.1m; since then we've added nearly 7.5m paid net adds in UCAN."

For the third quarter, Netflix sees earnings per share of $2.55 and revenue of $7.48B, with consensus estimates at $2.17 and $7.48B. Additionally, the streaming giant forecasts paid net additions of 3.5M versus 2.2M in the prior-year period. "We're also in the early stages of further expanding into games, building on our earlier efforts around interactivity (eg, Black Mirror Bandersnatch) and our Stranger Things games. We view gaming as another new content category for us, similar to our expansion into original films, animation, and unscripted TV. Games will be included in members' Netflix subscription at no additional cost similar to films and series. Initially, we'll be primarily focused on games for mobile devices. We're excited as ever about our movies and TV series offering and we expect a long runway of increasing investment and growth across all of our existing content categories, but since we are nearly a decade into our push into original programming, we think the time is right to learn more about how our members value games," the company said.

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