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Netflix earnings preview: More lockdown windfalls

Netflix (NFLX) shares received a boost ahead of its Thursday quarterly earnings release, after Goldman Sachs upped the company’s price target to $670 from a previous forecast of $540.

Shares of the Los Gatos-based video streaming service took an elevator ride after two days of positive gains, posting an 8% single-day jump to end the week at $548.73, while trading nearly 3% higher during today’s pre-market stock trading activity.

Goldman’s revised forecast released last Friday anticipates that the streaming service, which produced Orange is the New Black (pictured), will add at least 12.5 million new subscribers during the second quarter of 2020.

Netflix netted 15.8 million new subscribers in Q1 — its biggest-ever quarterly gain — because of coronavirus lock-down orders, to stand at nearly 183 million worldwide at the end of March. For the second quarter, it estimated 7.5 million additions worldwide, compared to 6.8 million in the year-earlier period

Analysts polled by Zacks.com are currently forecasting quarterly revenues of $6.08bn for Netflix’s second quarter, similar to the company’s own guidance of $6.05bn for the three-month period, but well below Goldman’s optimistic forecast.

Earnings per share are expected to come in at $1.83, which is 17% more than than the $1.57 per share the company earned the last quarter and more than 3 times higher than the $0.60 Netflix earned the year before.

netflix shares ytd performance

Lockdown measures resulting from the pandemic and imposed in most corners of the world during the months covered by this quarterly report would be responsible for the increase in Netflix’s user base, as people relied on its services to entertain while staying at home.

Meanwhile, although most analysts are expecting that this jump in the number of paid subscribers would be a one-off thing – pointing to uneven net additions before the virus – Goldman seems to think that the pandemic has shifted consumer’s preferences for good.

“While the thesis ‘if you haven’t subscribed by now, you never will’ is an easy rhetorical, it fails to capture the reality of Netflix’s earlier stage markets and a dramatically changing world that is pushing changes into every corner of consumer behavior”, said the New York-based investment bank in a note to clients released on Friday.

Moreover, a spike in virus cases in the US – the company’s largest market by revenue – could end up forcing another wave of lockdowns in many states, which would ultimately benefit the streaming company as more people will probably consider subscribing while staying at home.

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Alejandro Arrieche

Alejandro is a financial writer with 7 years of experience in financial management and financial analysis. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis.