Netflix (NFLX) is scheduled to report second-quarter results after market close on Tuesday, July 19. A video interview with Netflix executives, including co-CEO Reed Hastings and co-CEO & Chief Content Officer Ted Sarandos, will follow at 6:00 pm ET. What to watch:

1. SUBSCRIBER LOSSES: Netflix's membership trends "remain the most critical component of enterprise value as investors evaluate the Netflix value proposition in a competitive environment," contends Guggenheim analyst Michael Morris.

In the first quarter, the company reported global streaming paid net losses of 200,000, compared against its forecast of 2.5M additions and 4.0M subscribers added in the same quarter a year ago.

For Q2, Netflix has forecast paid net losses of 2M, which compares to 1.5M additions in the year-ago quarter. Netflix said: "Our forecast assumes our current trends persist, such as slow acquisition and the near term impact of price changes, plus typical seasonality [as] Q2 paid net adds are usually less than Q1 paid net adds." The company projects revenue to grow approximately 10% year over year in Q2, Netflix added in its last quarterly letter to investors.

On the day after the company's last earnings report, several Wall Street firms cut their ratings on the stock, with both Bank of America and Pivotal Research double-downgrading Netflix to Sell-equivalent ratings from Buy. Moving in the opposite direction, however, Needham analyst upgraded the name to Hold from Underperform, citing the company's indication of plans to adopt a low-priced advertising tier over the next 18-36 months.

More recently, Wedbush analyst Michael Pachter told investors that he believes Netflix is positioned to exceed its guidance for Q2, particularly because of the staggered release date for "Stranger Things 4," and that Q2 subscriber losses are likely to be fewer than feared. Pachter does not believe that Netflix's share price will approach 2021 levels for many years, but thinks the firm's price target of $280 is achievable within the next 12 months. The analyst reiterated his Outperform rating.

Consensus forecasts recently called for $8.04B in revenue and $2.96 in earnings per share for the June-end quarter, versus the company's forecast for Q2 revenue of $8.05B and EPS of $3.00.

2. AD-SUPPORTED OFFERING: On July 13, Greg Peters, Netflix Chief Operating Officer and Chief Product Officer stated in a post to the company's site: "In April we announced that we will introduce a new lower-priced ad-supported subscription plan for consumers, in addition to our existing ads-free basic, standard and premium plans. Today we are pleased to announce that we have selected Microsoft as our global advertising technology and sales partner. Microsoft has the proven ability to support all our advertising needs as we work together to build a new ad-supported offering. More importantly, Microsoft offered the flexibility to innovate over time on both the technology and sales side, as well as strong privacy protections for our members. It's very early days and we have much to work through. But our long term goal is clear. More choice for consumers and a premium, better-than-linear TV brand experience for advertisers. We're excited to work with Microsoft as we bring this new service to life." Reference Link

Afterward, Stephens analyst Nicholas Zangler said "virtually all" of his industry expert contacts expressed surprise that Netflix has chosen Microsoft (MSFT) as the global advertising technology and sales partner in its roll out of an ad-supported subscription tier, particularly because of the potential for traditional CTV ad-tech powers to be left out of the deal entirely. His base case assumption is that Xandr, a programmatic advertising marketplace that Microsoft previously bought from AT&T (T), will exclusively handle all ad-serving, SSP, and DSP functionalities, leaving "no economics" for Magnite (MGNI) and Trade Desk (TTD). In selecting Microsoft, Netflix is effectively choosing an independent option, said Zangler, who had previously argued against Google (GOOGL) and Comcast (CMCSA) as viable partner choices given Netflix would have been sharing proprietary data with those owners of competing streaming services. Netflix has "regularly been rumored" to be an acquisition target by mega-cap tech companies, added Zangler, who contends that operating Netflix's advertising arm "may represent the start of a courtship, potentially contemplated in [Netflix's] decision to select [Microsoft] over industry-leading candidates."

3. MOST IMPACTFUL REPORT YET: In a preview published this week, Guggenheim's Michael Morris dubbed this the "most impactful quarterly report yet" for Netflix, citing his view that it will have "wide-ranging implications for the stock and the media ecosystem." He believes investor sentiment remains cautious on Netflix, and streaming video more broadly, with a low level of confidence in the value-creation potential of an ad-supported product. He forecasts a third quarter member growth outlook of 1.7M, which compares to the Visible Alpha consensus forecast 1.8M, citing historical seasonality and a content slate headlined by the final episodes of "Stranger Things," "Cobra Kai 5," and the feature film "The Gray Man." Morris has a Buy rating and $265 price target on Netflix shares.

In his own recent preview note, JPMorgan analyst Doug Anmuth also said he believes investor sentiment is cautious and expectations are "muted" heading into Netflix's Q2 report. Relative to the company's guidance for a loss of 2M subscribers in Q2, the analyst believes investor expectations are a bit worse at between 2.5M and 3M, based on his recent discussions. He models a loss of 2.75M subs and for Q3, Anmuth believes the expectation is for positive net additions of 2M. The analyst is "more constructive" near-term on the shares as he expects the Netflix narrative to shift from "slow/no" sub growth forcing the company to "reluctantly" pull advertising and account sharing levers to a story about the early progress of those initiatives and the future benefits in terms of both monetization and subscribers. Anmuth keeps a Neutral rating on the stock with a $230 price target.

On July 6, Barclays analyst Kannan Venkateshwar lowered the firm's price target on Netflix to $170 from $275 and kept an Equal Weight rating on the shares. Netflix's Q2 growth "may be weak despite strong content," Venkateshwar tells investors. The analyst says Netflix appears to be on a path to losing 2.8M subscribers, a bit higher than company guidance of a 2M loss. Also, based on Barclays credit card data for April and May, U.S. subs likely declined sequentially, noted Venkateshwar. He reduced margin estimates to the low end of the company guide from the high end, but believes even this lower margin estimate could be at risk given the investment ramp required to build the advertising and gaming businesses.

On July 15, UBS analyst John Hodulik lowered the firm's price target on Netflix to $198 from $355 and kept a Neutral rating on the shares. The analyst believes that Q2 subscribers will track in line with the company's forecast of down 2M amid low-single-digit decline in gross adds and higher churn due to price increases. The second half of the year should be "seasonally stronger" for Netflix, but management will likely guide cautiously amid macro uncertainty, Hodulik predicted.

More By This Author:

Here is What Wall Street Is Saying About IBM Ahead Of Earnings
Opening Day: AMTD Digital Soars In Trading Debut
Mattel Upgraded To Buy From Neutral At Goldman Sachs