Netflix’s land grab ratchets up before the Q2

Market Updates

Covid proved to be a boon for Netflix: people spent more time indoors and needed more time to distract themselves. The streaming giant notched up colossal subscriber growth in response, capitalising on 2020’s mega-trends like no other.

Those trends reversed sharply in the first quarter of 2021. Management, which forecast paid subscriber growth of about +6 million, would in actuality report just +3.98 million Q1 net subscriber additions. Wall Street had even loftier expectations: +6.29 million new subscribers in Q1.

As those pumped up expectations collided with reality, the stock cratered, falling 10% in response.
Netflix aggressively slashed expectations to compensate, guiding for just 1 million net subscriber additions in Q2.
(And just to highlight how pronounced the pull forward in growth was for Netflix last year, during the second quarter of 2020 the company on-boarded 10 million new paying subscribers.)

So what are analysts expecting this quarter?

On the top-line, the sell-side is on average expecting Netflix to report Q2 revenues of $7.32 billion against earnings (EPS) of $3.15 per share — according to Yahoo Finance. Elsewhere, the consensus is for Netflix to report Q2 net subscriber additions of +1.97 million, a figure which suggests that analysts believe management forecasting is too conservative.

Those results are due out this Tuesday (US time), after the market close.

A place beyond the trees

Netflix is still grabbing land — earnings, though important — are arguably not the most important metric to look at.

Underscoring this notion of a land grab and as a sort of surprise twist leading into the Q2, Netflix last week revealed it would be pushing into the gaming market, disclosing it had hired ex-Facebook Head of AR/VR, Mike Verdu.

According to reports from Bloomberg, the intention is to offer video game experiences within the next year to subscribers, at no additional cost to current subscribers. Mr Verdu is set to lead Netflix’s game development efforts.

This move isn’t the most surprising one, though it is ambitious. The gaming market is, after all, an ultra-lucrative one, set to be worth ~$314 billion by 2026, according to Mordor Intelligence.

Despite that lofty market valuation: gamers are fickle, the market ultra-competitive, and companies such as Sony, Microsoft, Ubisoft, EA, and others, are unlikely to cede their dominant positions easily.

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