Netflix is running uphill with issues ahead of Q2 results
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If Wall Street analysts were looking for a way to describe expectations for Netflix's (NASDAQ:NFLX) upcoming second-quarter results, they didn't need to look any further than the streaming TV leader's tentpole hit, Stranger Things.
The show, set in the 1980s, gave new life to singer Kate Bush's 1985 song "Running Up That Hill", and made it a hit nearly four decades after its original release. And a handful of analysts have used Bush's song to describe the issues that Netflix (NFLX) in facing in one of its most-challenging times in recent memory.
In April, Netflix (NFLX) turned in a net loss of 200,000 subscribers for the first quarter of this year. That was Netflix's (NFLX) first quarterly subscriber drop in a decade. But, that decline may end up looking mild compared to what the company reports on July 19.
Netflix (NFLX) itself has said it expects to lose 2 million net subscribers during the second quarter of this year. And such losses may be likely to continue as a combination of competition from high-level rivals and consumers looking to tighten their belts amid an uncertain economy and prices rising at rates not seen in four decades. Wall Street analysts also estimate that Netflix (NFLX) will report a second-quarter profit of $2.96 a share on $8.04B in revenue.
Nat Schindler, of Bank of America Securities, said that data checks show mobile app downloads and daily active users [DAUs] under some pressure, with second-quarter app downloads down by 12%, and daily users off by 2% from the first quarter of the year. Schindler said customer cancellations, also known as churn, have become "worrisome" as worldwide cancellations are their highest levels in two years.
And while Netflix (NFLX) has been able to boast about how the latest season of Stranger Things has been a success, Schindler said the company may end up being too reliant upon such programs turning into megahits for future success, and to lure in new subscribers.
"If [the second quarter] goes well for Netflix attributable to Stranger Things, we worry it may be vastly more hit driven than prior years," Schindler said. "This may present a problem unless another original show captures its stature." Schindler holds an underperform, or sell rating, and $196-a-share price target on Netflix's (NFLX) stock.
At Morgan Stanley, analyst Benjamin Swinburne echoed Schindler's "Running Up That Hill" sentiment regarding Netflix (NFLX), but wasn't quite as gloomy about the company's prospects in the coming months. 
Swinburne, who has an equal weight rating and $220-a-share target price on Netflix's (NFLX) stock said that rising customer churn, and a stronger U.S. dollar, could end up impacting the company's subscriber levels and earnings through the end of the year. Swinburne added that Netflix's (NFLX) sheer size and amount of content should help it retain customers, but at prices that can cost $20 a month, "its relative price premium is likely an offset as consumers look to trim their streaming bill."
However, Netflix's (NFLX) plans to add an ad-supported subscription tier may give the company a lift that could counter some of the revenue lost by customers that cancel their memberships. Swinburne said that as Netflix (NFLX) taps into a $160B global video advertising market, it should be able to drive growth in average-revenue-per-user [ARPU] and be less dependent on consumer price increases.
"Netflix can offer a materially lower priced offering and unlock additional net [subscriber] additions without sacrificing unit economics," Swinburne said. "Advertising may also prove a consumer freindly way to monetize password sharing."
As part of its effort to introduce an ad-supported streaming option, Netflix (NFLX) on Wednesday said it had chosen Microsoft (MSFT) to be its global advertising sales and technology partner."