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Netflix earnings: Three things to watch for

Josh Lipton and Mariela Rosales

Netflix (NFLX) will be reporting its third-quarter earnings results on Wednesday, October 18. Oppenheimer Managing Director & Head of Internet Research Jason Helfstein joins Yahoo Finance Live to discuss the three things he is watching for in the company's earnings.

Helfstein is watching for net subscriber adds, average revenue per membership, and plans for ad-tier.

“There is a general view that [Netflix will] beat the overall street estimate. The question's how much they come higher than that?,” Helfstein says. Average revenue per membership, or ARM, was “basically flat year-over-year… but the pushback on the ARM is that if ultimately you’re getting more people to opt into paid sharing... why isn’t it going up more than that?”

Netflix “can control the rollout of paid sharing… and they are purposely slow-rolling that. We think they wouldn’t do that if they weren’t otherwise confident in their guidance,” Helfstein adds. Netflix has also said that they will increasing prices after the Hollywood strike ends.

Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

Video transcript

[AUDIO LOGO]

- Netflix kicking off tech earnings for the season with its third quarter report on Wednesday after the bell. Our next guest has his eyes on three key things in this report, net number of subscribers added, average revenue per subscriber, and the company's plans for its struggling ad tier. Joining us now is Jason Helfstein, Oppenheimer Managing Director and Head of Internet Research. Jason, great to see you. So you are a Netflix believer, Jason. You got an outperform. I think your target is for 470. Why are you bullish, Jason, heading into this report?

JASON HELFSTEIN: You know, while there's been a lot of headlines about what they can't control, which is the rollout of their advertising business, they can control the rollout of paid sharing. That's basically getting kind of a-- some of the more egregious shares to either pay more money per month or get their own account. And they are purposely slow rolling that. And we think they wouldn't do that if they weren't otherwise confident in their guidance. So, you know, we think for the next few quarters-- next two quarters, they've got pretty good control on kind of where the numbers play out. And then they've also told you that a pricing increase will come at the end of the Hollywood strike.

JULIE HYMAN: And, Jason, hey, it's Julie here. Give us a little more detail on those three things that you're looking for. And let's take the two first first, because they sort of go together here. How many subscribers are going to be added, and then the average revenue per member or per subscriber. What are you looking for here from Netflix?

JASON HELFSTEIN: So we have 6 million new subscribers in the quarter. I think that the street is 5.6. And if you look at the high-end of the street, they're are about 6 and 1/2, right? So I think there is a general view that they'll beat the overall street estimate. The question is how much they come higher than that. And then for revenue, basically, per subscriber, you know, ARM we're basically flat year-over-year. Maybe it'll be a little bit better with currency. But the pushback on the ARM is that if ultimately you're getting more people to opt into paid sharing, right, pay for the unused accounts, why isn't it going up more than that?

And there's a thought of are people downgrading from, let's say, a premium plan to a less premium plan, which the company is saying they're not, or kind of other factors, as well as for folks who were moving into the ad tier, they're kind of behind plan on monetizing that. So to the extent if you do have somebody who, let's say, leaves kind of the ad free through paid sharing, it ends up on the advertising tier. They're not getting the full monetization they're advertising right now because that's going slower. So that's where the noise is in the numbers. And ultimately, that kind of revenue per subscriber, they call it ARM.