One theory that could make Netflix bulls feel better: ‘The Q2 curse’

Reed Hastings, chief executive officer of Netflix Inc.

Akio Kon | Bloomberg | Getty Images

Netflix shares are cratering after it posted a rare loss in Domestic subsribers and a much smaller than expected gain in international users when the streaming company reported second-quarter earnings.

Or, as Bernstein analyst Todd Juenger put it, “the Q2 curse strikes again.”

“There must be something about Q2 that makes it especially hard for Netflix to predict subs. Since 2016, they have missed their Q2 sub guidance 3 of 4 times,” Juenger said in a note to investors on Thursday.

For comparison, Juenger added that Netflix has missed expectations on this metric just once in the first quarter and never for the third and fourth quarters over the last three years.

Netflix stock fell more than 10% in premarket trading from Wednesday’s close of $362.44 a share. It lost 126,000 domestic subscribers in the second quarter. Analysts expected a gain of 352,000 subscribers, according to FactSet. On the international side, it added 2.83 million subscribers, much smaller than the 4.81 million expected by analysts surveyed by FactSet.

J.P. Morgan analyst Doug Anmuth similarly noted that Netflix’s second quarter “results are often volatile,” although the firm lowered its price target on Netflix to $425 a share from $450 a share. Netflix “had a number of moving pieces” during this quarter, Anmuth said.

“We don’t take the 2Q miss lightly, but history tells us it’s a difficult quarter from which to extrapolate NFLX’s trajectory,” Anmuth added.

“There are stranger things than a 2Q miss,” the analyst wrote.

Wall Street is sticking by Netflix despite the miss, with the majority of firms reiterating buy ratings on the stock. Bernstein lowered its Netflix price target by just $1, to $450 a share from $451 a share, as the firm repeated by its outperform rating.

“We expect investors will mostly blame price increases. If so, the good news is, those are mostly behind us, management says churn has returned to previous levels,” Juenger said. 

“While our US paid membership was essentially flat in Q2, we expect it to return to more typical growth in Q3, and are seeing that in these early weeks of Q3,” Netflix said in a press release. “We forecast Q3 global paid net adds of 7.0M, up vs. 6.1M in Q3’18, with 0.8M in the US and 6.2M internationally.”

Juenger mused that the stronger track record in the second half of the year may “inspire some confidence among investors.”

– CNBC’s Michael Bloom contributed to this report.

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