Netflix (NASDAQ:NFLX) is on top of the world as it heads into Wednesday afternoon's quarterly report. Streaming competitors are falling like flies. It's been announcing magnetic content deals for TV shows and more recently movies. The stock hit a new all-time high last month.
Given the buoyancy in the shares -- the stock has popped more than eightfold since bottoming out two years ago -- and with favorable analyst buzz, it's safe to say that expectations are heightened ahead of the third quarter report. It goes without saying that great news can send the shares even higher and bad news will let some of the air out of the Netflix balloon, but let's go over a few of the things that will likely dictate how the market reacts to the report.
1. 54 million subscribers or bust
Netflix closed out the second quarter with 50.05 million streaming subscribers worldwide, targeting 53.74 million members by the end of the third quarter. The leading provider of premium video streaming has historically provided conservative guidance, and shareholders have benefited from quarterly performances that more often than not have exceeded Netflix's own outlook. However, the challenge to surpass 53.74 million streaming accounts has some extra weight this time around.
Netflix increased the monthly rate of its streaming platform by a buck to $8.99 for new members in early May. It was an interesting move because Netflix also chose to let existing members stick with the original $7.99 monthly rate for another two years. This will naturally help with retention, but will millions of people sign up knowing that they're paying more than tens of millions of existing members?
Netflix held up well during the second quarter given this interesting dynamic, but the third quarter will be the dot-com darling's first quarter where new members were paying $8.99 a month the entire time.
2. Netflix may use its shareholder letter to bash Comcast
Netflix CEO Reed Hastings isn't afraid to go after Comcast (UNKNOWN:CMCSK.DL) (NASDAQ:CMCSA). He calls out the competition by name, even if the country's largest cable television provider also happens to have an even larger Internet business that Netflix needs in order to connect users to its product.
Comcast is trying to join forces with Time Warner Cable (UNKNOWN:TWC.DL), and the combination of the country's two largest cable television providers has been a sore spot for Hastings. He's been taking the proposed marriage to task, and Comcast has also fired back. Netflix was mentioned 283 times in a recent Comcast SEC filing. The quarterly shareholder letter would be a convenient platform to fire back. Hastings has regained his swagger since his stock has been bouncing back over the past two years. It wouldn't be a surprise if he took a shot here, and Hastings isn't alone. Comcast was the top dog in Consumerist's annual Worst Company in America this year.
3. Video killed the multiplex star
One of the more interesting developments at Netflix happened two weeks ago when it announced that it would be bankrolling movies. It will stream the Hidden Tiger, Crouching Dragon sequel the day it hits Imax screens next summer. That will be followed by four Adam Sandler movies.
Making an investment in movies is a serious departure from its push into original TV shows, and one that will naturally be more expensive per hour of content. Netflix isn't afraid to pay up in order to build up its catalog. It had a record $7.7 billion in streaming content obligations at the end of June. Investors will want to keep an eye on that metric, but the real story here is that Netflix will probably be discussing its strategy for making the move into streaming traditional theatrical fare at the same time it becomes available at a multiplex near you.
Rick Munarriz owns shares of Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.