Netflix (NFLX -8.40%) is one of the first major growth stocks to report earnings every quarter, and its second-quarter earnings report is already less than a month away. The streaming TV company will report its latest quarterly results on July 17.
Ahead of the earnings release, expectations are high. Despite recent rate hikes on customers' subscriptions, Netflix continues to attract millions of new customers every quarter. The company's first-quarter subscriber growth came in well ahead of both management's and analysts' forecasts as customers flocked to watch the media company's growing menu of high-quality original content.
Can Netflix keep up its strong momentum?
When the streaming TV giant reports its second-quarter results, here's what to watch for.
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Paid member additions
As is usually the case, Netflix's paid net member additions will likely be the most closely watched metric in the quarterly update. The company added 9.6 million paid members in Q1 -- significantly more than the 8.9 million management had forecast for the period.
In Netflix's second quarter, management expects to add 5 million new paid members. In contrast to recent quarterly trends, this figure would be below the 5.45 million new paid members Netflix garnered in the year-ago quarter.
But there's a good explanation for management's conservative forecast. The company's content schedule favors the second half of the year. Beginning in July, Netflix has a long list of big-name series and movies coming out, including the latest seasons of Stranger Things, 13 Reasons Why, and Orange Is the New Black, and Michael Bay's new film, Six Underground. These are the type of shows that bring in record numbers of subscribers.
Paid international member additions
Investors should also watch Netflix's international growth, as growth outside of the U.S. now represents the bulk of the company's net member additions. In Q1, for instance, about 80% of net member additions were international.
Look for international net additions to be close to the 3.7 million members the company added in the second quarter of 2018.
Operating margin
Finally, investors should check in on Netflix's operating margin, or its operating profit as a percentage of revenue. The company's operating margin fell year over year in Q1, declining from 12.1% in the first quarter of 2018 to 10.2%. In the company's second quarter, however, Netflix expects an operating margin of 12.5% -- higher than an operating margin of 11.8% in the second quarter of 2018.
Importantly, investors should look for Netflix to at least maintain its guidance for its full-year operating margin to be 13%. Management believes it can pull this off because it expects its second-half operating margin to be higher than it was during the first half of the year.
Keep an eye out for Netflix's second-quarter update after market close on Wednesday, July 24.
