'Netflix has extended its lead': Here's what 3 analysts expect from the streaming giant's quarterly earnings

• Netflix is poised to show that it benefited from stay-at-home directives and a strong content lineup when it reports second-quarter earnings on Thursday afternoon.
• Wall Street analysts mostly expect the company to beat expectations for subscriber growth after trouncing estimates in the first quarter.
• But some firms have lost their bullish view of the stock and think its rally over recent months has already priced in an earnings beat.
• Here's what Goldman Sachs, UBS, and Credit Suisse expect when Netflix reports its second-quarter results.
• Watch Netflix trade live here.

One of investors' top stay-at-home plays is set to report its second-quarter figures on Thursday afternoon, and Wall Street has high hopes.

Analysts largely expect Netflix to surprise to the upside with its latest earnings report. Even as lockdowns raised the cost of producing new content, the widespread quarantine activity likely kept subscriber growth strong through the quarter, some firms said in recent research notes.

Others aren't as optimistic and instead view the streaming giant's shares as already pricing in a strong earnings beat.

Netflix blew expectations out of the water in the first quarter, adding 15.8 million subscribers compared with a forecast of 7 million additions. Revenue of $5.8 billion slightly surpassed estimates. Earnings of $1.57 per share landed just below the expectation of $1.64.

The company's Thursday report will also shed light on how it sees subscriber additions continuing into the third quarter. Some analysts fear that gradual reopenings could slow the strong growth trend. With the greater economic backdrop still largely uncertain, any hints about current-quarter performance will be closely monitored.

Here's what three firms expect from Netflix's second-quarter report.

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Goldman Sachs: 'The COVID-19 crisis is accelerating the shift ... to streaming services'

The team of analysts led by Heath Terry expects Netflix to report results "well above guidance," including an addition of 12.5 million subscribers.

The company's early-mover advantage and strong content catalog set it up to outperform through the coronavirus crisis, according to Goldman Sachs.

"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," the team said.

A positive result is likely to be driven largely by new content on the platform, a lack of significant competition, and more time at home for Americans, the analysts added. As Netflix's subscriber base grows and gains from the network effect, it's poised to benefit from the pandemic and its lasting effects.

The analysts said they "continue to believe the COVID-19 crisis is accelerating the shift from traditional content consumption to streaming services."

The bank maintained a "buy" rating for Netflix shares with a $670 price target. Netflix closed at $523.26 per share on Wednesday.

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UBS: 'Investor fears seem to have disappeared'

Netflix's report is set to "demonstrate a widespread benefit as the COVID-19 environment continues to impact consumer behavior," UBS analysts led by Eric Sheridan wrote in a note on Tuesday. But the benefits of such strong demand are largely priced in, and the share price isn't taking key risks into account, they added.

"Investor fears seem to have disappeared," UBS said, adding that "the current stock price increasingly reflects many of the long-term business moat dynamics including sustained growth in users/revs and steady state margin expansion."

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UBS downgraded Netflix stock to "neutral" from "buy" while maintaining a $535 price target. The streaming company's stock price rallied roughly 23% over the past month as more investors bet on Netflix to ride out economic woes. Netflix is still on track to post strong subscriber growth and revenue for the second quarter, but the bank cautioned against buying in at such lofty levels.

"In our opinion, NFLX's long-term narratives remain intact but we would rather be constructive at levels when a mix of potential subscriber volatility, [free cash flow] dynamics & competition are better reflected in the share price," the analysts said.

Credit Suisse: 'Netflix has extended its lead this year'

Analysts led by Douglas Mitchelson expect second-quarter subscriber growth to land at 10.6 million as app-download data points to a healthy addition and momentum builds in Asia.

Downloads doubled in India, tripled in Japan, and quadrupled in Indonesia, according to SensorTower data. With "the Asia flywheel fully spinning up" and Netflix increasing its content library with hits including "Outer Banks," "Extraction," and "Space Force," the company is set to impress once again, the team said.

"Regarding competition, our analysis of Nielsen US TV screen viewing data shows that Netflix has extended its lead this year against nearly all major streaming platforms," Credit Suisse said.

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Competitors have also struggled to keep up with Netflix even as streaming gains popularity, the analysts added; the debuts of HBO Max and Disney Plus didn't make "any noticeable impact on NFLX performance." Netflix's roster for the second half of 2020 looks just as strong, with potential hits including "Umbrella Academy 2," "Red Notice," and "Kissing Booth 2," Credit Suisse said.

The bank maintained its "outperform" rating for Netflix shares, with a price target of $550.

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