=Netflix (NFLX) reported earnings on Wed 17 July 19 (a/h)

Netflix beats by $0.05, reports revs in-line, misses subscriber forecast; guides Q3 EPS and revs in-line, subs just above estimates; reaffirms FCF, operating margin

Reports Q2 (Jun) earnings of $0.60 per share, $0.05 better thanthe S&P Capital IQ Consensus of $0.55; revenues rose 26.0% year/year to $4.92 bln vs the $4.93 bln S&P Capital IQ Consensus. 

Paid membership grew by 2.7m, less than the 5.5m in Q2 a year ago and their 5.0m forecast.

• "Our missed forecast was across all regions, but slightly more so in regions with price increases. We don't believe competition was a factor since there wasn't a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions (while our over-forecast was in every region). Rather, we think Q2's content slate drove less growth in paid net adds than we anticipated. Additionally, Q1 was so large for us (9.6m net adds), there may have been more pull-forward effect than we realized."

In Q3, they expect to grow by 7m paid memberships vs. 6.3 mln ests, more than the 6.1m in Q3 a year ago. While our US paid membership was essentially flat in Q2, we expect it to return to more typical growth in Q3, and are seeing that in these early weeks of Q3. We forecast Q3 global paid net adds of 7.0m, up vs. 6.1m in Q3'18, with 0.8m in the US and 6.2m internationally. Our internal forecast still currently calls for annual global paid net adds to be up year over year.

Co issues in-line guidance for Q3, sees EPS of $1.04 vs. $1.04 S&P Capital IQ Consensus; sees Q3 revs of $5.25 bln vs. $5.24 bln S&P Capital IQ Consensus.

There's no change to our 13% operating margin target for FY19, up 300 basis points year over year. We're still forecasting FCF of ~($3.5 billion) for the full year 2019 and expect improvement in 2020. From there, we'll continue to reduce our free cash flow deficit as we intend to continue growing our member base, revenues, and operating margin, which provides a clear path towards positive FCF.