Netflix challenges internationally and at home may highlight its Q2 report

Netflix's (NASDAQ: NFLX) prospects for success in Japan, its future content strategy, and its potential bandwidth challenges as ISPs like Charter Communications (NASDAQ: CHTR) grow their broadband footprint are among the topics analysts will likely want to hear about when the SVOD market leader discusses its second-quarter earnings results.

The provider will report its second-quarter results late Wednesday afternoon--after FierceOnlineVideo goes to press--but analysts are already speculating on what CEO Reed Hastings will discuss in his traditional shareholder letter as well as in a conference call with investors and analyst firms.

For one, Netflix's planned entry into Japan may not be very smooth, based on past performance of other U.S. companies in that country.

"Japan has been a tough market for US media companies," BTIG analyst Richard Greenfield wrote in a blog post outlining his questions for Netflix executives. "Hulu Japan had been viewed as a failure, until it was sold off and shifted its strategy. What does Netflix need to do differently to be successful in Japan?"

Netflix's strategy around content is also a concern, with Greenfield wondering why the provider licensed Friends but didn't apparently bid for Seinfeld--which Hulu locked in exclusively several weeks ago. Also, will it ever allow its content to be part of a bundle, in the way that HBO is allowing its channels to be bundled into linear OTT offerings like SlingTV?

Further, should the media and entertainment market move toward consolidating high-end content (such as Fox and Time Warner potentially joining forces to offer their programming in a different way), Greenfield wonders whether the trend will worry Netflix.

And, even though net neutrality rules went into effect in June, Netflix may still have to deal with last-mile streaming challenges, particularly as Internet service providers expand their broadband footprints. Greenfield cited Charter's proposed merger with Brighthouse and Time Warner Cable (NYSE: TWC) as the prime example. "Is creating an ISP nearly as large as Comcast enabling two ISPs to effectively control 2/3 of last mile bandwidth in Netflix's long-term best interests (using the FCC's new definition of 25 Mbps)?" Greenfield wrote.

MoffettNathanson maintained a "Neutral" rating for Netflix in its Q2 preview blog post, setting its earnings per share (EPS) at 4 cents, unchanged, even after the company's seven-to-one stock split went into effect. The analyst firm predicts that for the second quarter, Netflix will report subscriber additions of 2.9 million, much less than Q1's 5.1 million additions but in line with the company's guidance.

The Wall Street Journal's MoneyBeat blog noted that Netflix shares were trading at $100.74 before the market opened Wednesday morning--a 0.4 percent increase following its Tuesday-night split. The post cited SunTrust Robinson Humphrey analyst Robert Peck as also maintaining a "neutral" rating for Netflix.

Still, another WSJ article sounded a note of caution on Netflix performance post-earnings. The SVOD provider was "the best performer in the S&P 500 in the first half," Spencer Jakab wrote. But "its increasingly negative free cash flow and mushrooming on- and off-balance-sheet-content obligations should set hearts racing."

FierceOnlineVideo will have an update on Netflix earnings once they are released at market close on Wednesday.

For more:
- visit Netflix's investor page
- see this MoneyBeat story
- this BTIG post (sub. req.)
- and this WSJ article (sub. req.)

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