Netflix (NASDAQ:NFLX) is gearing up for its second-quarter report this Wednesday evening. Let's have a look at what to expect from the streaming-video veteran's next business update.

Guidance targets

Metric

Q2 2019 Guidance

Q2 2018 Results

Expected Change

Global paid streaming subscribers

153.9 million

124.4 million

24%

Total revenue

$4.93 billion

$3.91 billion

26%

GAAP earnings per diluted share

$0.55

$0.85

(35%)

Free cash flow

Negative

($559 million)

Not measurable

Data source: Netflix. GAAP = generally accepted accounting principles.

Reaching these exact targets would amount to exactly 5 million net new streaming subscribers, down from 9.6 million in the first quarter and 5.5 million in the year-ago period.

The company raised subscription prices in the U.S., Mexico, Brazil, and parts of Europe in recent months, boosting the average revenue per account at the cost of losing some momentum in subscriber growth.

If the bottom-line guidance looks low, it's because Netflix reworked its corporate structure in the first quarter. The simpler structure should trigger a handful of one-time tax charges in Q2, lifting the effective tax rate as high as 48%. For the record, that metric stood at 14% in the first quarter. In the long run, management expects the effective tax rate to trend toward the U.S. corporate average. According to the St. Louis Fed, that rate landed at 10.2% of operating profits in 2018.

A young man and woman watching TV together, visibly shocked at what's on the screen.

The streaming-video landscape is changing. Image source: Getty Images.

Beyond the numbers

Netflix investors are acutely aware that the competitive landscape is changing. Once upon a time, streaming long-form video typically referred to Netflix, with just a fleeting presence from smaller platforms like Amazon Prime Video and Hulu. In particular, Netflix was piling third-party content agreements into a sector-leading catalog. The end game could have been Netflix becoming the no-brainer streaming-video service where every content creator could publish their works on a global platform.

The industry is moving in a different direction now. Many of Netflix's current and former content partners have already started up their own streaming services. Others are in the process of setting up their own platforms. This is not working out as a monopolistic situation at all, but one where fresh competitors are rushing Netflix from every conceivable angle. At the same time, these new services are fueled by movies and shows that used to be available through Netflix.

Investors are on the edge of their seats, anxious to see how this evolving situation works out. Will Netflix ramp up its original content production even faster? Would management consider adding lower-cost subscription tiers where advertising makes up for the lost top-line revenue? Does management have any other growth-boosting tricks up its sleeve to make up for the content and subscribers that might move elsewhere? These earnings reports and the attendant conference calls give Netflix officials a great stage from which to reveal this kind of strategy guidance.

Don't hold your breath waiting for an encyclopedic explanation of what comes next, but do keep your eyes open for hints and clues.