Netflix Inc. chief executive Reed Hastings boasted this month on his Facebook page that subscribers had streamed more than 1 billion hours of movies and TV shows in June, a record for the video rental service.
On Tuesday, Netflix will answer the question most on its investors' minds: How much of that increase comes from new subscribers who pay $8 a month for unlimited viewing?
Wall Street will focus on the number of domestic customers added in the second quarter to see if Netflix is growing quickly enough to pay Walt Disney Co, Warner Bros, CBS Corp and others to stream their movies and TV shows.
Netflix added 1.7 million U.S. streaming subscribers in the first quarter and shipped online content to 23.4 million people, Hastings said in an April 23 letter to shareholders, although costs to expand in Europe saddled the company with a $4.6 million loss for the period.
Netflix said it expected to add up to 800,000 more streaming customers in the United States in the second quarter.
"That's the part investors are waiting with bated breath to see," said Barclays Capital analyst Anthony DiClemente, who estimates the company will report a gain of about 700,000 domestic streaming subscribers. He rates Netflix at "equal weight" with an $84.90 share-price target.
The stock was down 2.7 percent at $79.65 in morning trading on Monday, compared with a 52-week high of $285.50 almost a year ago.
On average, analysts expect Netflix to report earnings of 4 cents per share, according to Thomson Reuters I/B/E/S. The company estimated a range from a 10-cent loss to a 14-cent gain.
A year ago, Netflix posted earnings of $1.26 a share for the quarter, which ended just before its controversial decisions to raise prices and charge separately for its streaming and mail service prompted a wave of cancellations.
Wall Street expects revenue of $889 million for the second quarter, compared with $788.6 million a year earlier.
At Friday's close, shares of Netflix had fallen 23 percent since its last earnings report on April 23, when the company projected slower subscriber growth for the second quarter.
Still, the stock had gained more than 20 percent since Hasting's July 3 Facebook post, even though investors are nervous about pricey deals for TV shows and movies and emerging competition from companies like Amazon.com Inc and Hulu.
Investors also want to know whether Netflix still expects to add 7 million new subscribers in 2012, said JPMorgan analyst Doug Anmuth, who has a "neutral" rating on the stock.
The company's third-quarter forecast "likely needs to show a sharp increase in the trajectory of domestic streaming net adds, in order for investors to have confidence" that Netflix can achieve the 7 million target, Anmuth said in a note to clients.
Details on the international business also are key. After expanding to Latin America and Britain over the last year, Netflix has said it will hold off on entering other areas until it returns to profitability.
BMO Capital Markets analyst Edward Williams expects the company to introduce its service in another European market in the fourth quarter.
"The earlier Netflix achieves profitability in its international expansions," he said, "the earlier the company will expand further."