Digital veteran video Netflix (NASDAQ: NFLX) He does great business on the accuracy of his targeting goals. The company publishes the same financial projections that management uses for decision making.
“The quarterly guidance we provide is our actual internal forecast at the time we report,” Netflix writes in its quarterly letters to shareholders.
We are about to receive another Netflix earnings report after tonight’s closing bell. In preparation for that event, let’s take a closer look at the accuracy of those internal forecasts in the latest quarterly reports.
Image source: Netflix.
Subscriber additions
Data source: Netflix earnings reports.
No metric moves Netflix stocks faster than its global net subscriber additions. The company met or exceeded its guidance targets in five of the last 13 earnings reports. Netflix was 18.7% surprised on average, or 9.8% if it excludes 125% surprise in the first quarter of 2020 due to the COVID-19 blocking effect. Here’s a different look at the percentage level accuracy of subscriber projections:
 Data source: Netflix earnings reports.
The changes tend to be quite large here, reflecting the inherent difficulty in predicting how consumers around the world will react to new content, price changes, economic pressures, requests to stay home, recent releases or competitive service futures and other games potentially factors of change. Some of those entries are under the control of Netflix and others are not.
Income
 Data source: Netflix earnings reports.
I included the Wall Street consensus estimates for the revenue and profit charts, just to show how close your average analyst will stay to the official Netflix guide. It is often difficult to distinguish the analyst’s line from the orientation objectives.
It is also difficult to separate the actual results from the top line from any of the future projections. This stability stems from Netflix’s monthly subscription programs. Revenue simply increases predictably immediately after big subscriber jumps. Substantial surprises along this line should be rare, and they are.
Profits
 Data source: Netflix earnings reports.
Finally, Netflix has many levers available to control your bottom line. We have already seen how stable revenue is, and the company controls its expenses below that line. Profits are below the Netflix guideline when the company sees unexpected opportunities to run expensive and ambitious marketing campaigns, and exceed expectations when operating expenses or tax payments are low.
What to expect tonight
Netflix expects second-quarter sales to increase 23% year-over-year, reaching nearly $ 6.1 billion. Earnings should triple from $ 0.60 to $ 1.81 per diluted share. For what it’s worth, analyst consensus is exactly in line with Netflix’s official targeting goals. The company expects 7.5 million new net subscribers this quarter, which would raise the total subscriber count by 26% to 190 million accounts year-over-year. However, management was less confident than usual: “Given the uncertainty about home confinement time, this is primarily a guess. Actual Q2 numbers could end up well below or above that, depending on many factors, including when people can return to their social relationships lives in various countries and how many people take a break from television after the shutdown. “
There you go. All we really know is that Netflix will report second quarter sales in the neighborhood of $ 6.1 billion. The other projections may end up as outliers in either direction the next time you run the numbers this way.
