As the second quarter comes to a close, streaming TV and movie service Netflix (NFLX 1.82%) is always one stock that gears up to report quarterly results toward the beginning of earnings season. Sure enough, the company is scheduled to report its Q2 results in less than three weeks, on July 19.

The stock is in an interesting position headed into the report. Shares have soared this year. They are up 45% year to date and 32% in the last three months alone. This means investor expectations are high. If any key figures reported for the quarter come in below expectations, the stock could fall.

Let's take a look at what investors will be watching when Netflix reports earnings. More importantly, let's debate whether or not now is a good time to buy the stock.

Subscriber growth is key

Though Netflix's 1.75 million net-paid subscriber additions in Q1 2023 were down from the 7.66 million it added in Q4 2022, the year-over-year growth rate in total paid subscribers importantly picked up some speed. Netflix's total paid subscribers at the end of Q1 2023 were 232.5 million, up 4.9% year over year. This growth rate compares to 4% growth in Q4 2022. Given how well Netflix's stock has performed recently, investors will likely be hoping for a further acceleration in this growth rate in Q2. 

Investors will be watching this metric closely because the company has been rolling out some changes to its business to help accelerate subscriber growth. First, it has started the process of cracking down on account sharing by launching paid sharing in the beginning of the year and in the U.S. in Q2. Second, Netflix has introduced lower-priced, ad-supported plans. These plans should reaccelerate growth as the company's service becomes more accessible to customers unwilling to pay the higher price of plans without ads.

Netflix's most important catalyst

Speaking of Netflix's advertising business, this is arguably the one catalyst that investors are watching the most closely. The company emphasized in its Q1 update that its U.S. ad-supported plans already have average revenue per member in excess of the revenue the company is generating from its standard ad-free plans. These favorable economics have encouraged the company to continue investing aggressively in its ad business.

Investors should look for more positive updates on Netflix's rapidly growing ad business. The company has gone on record saying it believes its advertising business could grow to 10% or more of its total revenue over the long term. Look for management to reiterate similar sentiments about the important business during its Q2 update.

Netflix stock: Buy, sell, or hold?

Expectations for Netflix stock are undoubtedly high going into the company's earnings report. This is evident by the premium valuation the stock commands at 47 times earnings. But given Netflix's compelling catalyst in its nascent advertising business and management's efforts to crack down on account sharing, the growth stock is probably worth its current premium.

For these reasons, I believe shares may be a good buy today. But that doesn't mean shares won't fall sharply after the earnings report. There's no way to know what the company will report or how the market will react. But shares do look like a compelling long-term investment, albeit only as a small portion of a more diversified portfolio.

Netflix will report its Q2 results after market close on Wednesday, July 19.