Netflix shares rallied after the company’s earnings report came in slightly better than expected. For the second quarter, earnings per share came in at $0.06 per share, higher than analysts’ forecasts of $0.04, or $0.09 on an adjusted basis. Revenue totaled $1.64 billion, right in line with expectations.
In addition, the company reported net subscriber additions of 3.3 million, bringing its total subscriber count to 65.55 million. However, free cash flow in the quarter was negative $229 million, a larger deficit than the negative $163 million the company reported in the first quarter. Netflix shares were up by almost 11% around the end of the U.S. trading session.
Netflix Shares Outlook
“As we have previously detailed, our investment in originals is working capital intensive, which results in higher cash spent upfront relative to content amortization, and, we anticipate this trend to continue given our increased investment in originals,” the company explained in its earnings letter to its investors.
However, their expansion plans could brew trouble, as the lack of free cash flow might be a limiting factor. The sudden jump in users also brought about a sudden increase in costs, and it didn’t help that the dollar’s appreciation rendered weaker international revenues.
In terms of the company’s forecasts, it is expecting more gains in the third quarter, which could potentially boost Netflix shares. The company expects earnings per share of $0.07 on streaming revenue of $1.59 billion and an additional 3.55 million subscribers.
Netflix shares recently had a 7-for-1 stock split and taking that into consideration shows that the price is still at an all-time high. In fact, the value of shares have doubled this year alone. A pullback on the recent climb might take place though, and this could last until the previous area of interest around $90-100/share. A larger correction could reach until the 100 SMA support around $80/share.
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