Losing 200,000 customers in 90 days. An unpopular price hike. And a 35 percent stock freefall. That was the story at Netflix three months ago when it released its first quarter results.
Investors are hoping that was the low point in the Netflix business narrative. The company will announce second quarter results on Tuesday.
The streaming media, movie and TV production giant has evolved far beyond the entertainment industry to become a technology and consumer bellwether. Netflix stock is one of the proxies for investor risk appetite. And it also has the unenviable distinction of being the worst performing S&P 500 stock so far this year.
At the most obvious level, Netflix’s quarterly results will tell shareholders just how big the wave of subscriber cancellations has grown. Company executives have foreshadowed a 10-fold increase in lost subscribers in the second quarter compared to earlier in the year. Anything less than that may be interpreted as less-than-bad news.
The company may update its efforts to crack down on password sharing, which it argues costs it 100 million paying customers. If just half of them converted to paid accounts, that would boost paid subscriptions by almost 25 percent. Netflix began deploying its password sharing crackdown in March in Latin America but offering paid accounts to add others who don’t live in the same house at a discount price. Early results will be important to address worries about the battle to convert those “shared” accounts into paying subscribers.
In a twist in Netflix’s business model as easy to see as one in a B movie, the company finally made it official last week. It will launch a cheaper streaming service that will include advertising. The company has resisted the lure of advertising since it was sending DVDs through the mail. There is no more suspense. Netflix said it is in the “very early days” of developing its advertising-supported tier.
The Netflix story also will be viewed through the lens of recession worries. With $5-a-gallon gasoline, egg prices jumping 33 percent in a year, and the Federal Reserve poised to accelerate its interest rates hikes, will investors be interested in a difficult plot line?
It is worth hearing Netflix’s story whether you’re a shareholder or not. Like any well-told tale, it will tell us something about ourselves, and in this case, the economy.
Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami, where he is the vice president of news. He is the former co-anchor and managing editor of “Nightly Business Report” on public television. Follow him on Twitter @HudsonsView.
