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Netflix (NFLX) is scheduled to report its third quarter 2024 financial results and business outlook on Thursday, October 17. A video interview with Netflix executives, including co-CEOs Ted Sarandos and Greg Peters, will follow at 4:45 pm ET. What to watch:
SUBSCRIBERS: Netflix’s membership trends are a closely-watched measure of the company’s growth trajectory.In the second quarter, the company reported global streaming paid net additions of 8.05M, noting that global revenue was 1% higher than its beginning of quarter guidance due primarily to stronger-than-forecasted paid net additions.Netflix also noted in its quarterly letter to investors that it forecasts Q3 paid net additions to be lower than in the same quarter of last year, which had the first full quarter impact from paid sharing. In Q3 of FY23, Netflix had posted a 9% year-over-year increase in average paid memberships, or 8.8M paid net additions, which it attributed at that time to the roll out of paid sharing, “strong, steady programming” and the ongoing expansion of streaming globally.”Like recent quarters, we forecast global ARM on a reported basis to be roughly flat year over year in Q3 due to ongoing F/X headwinds and plan and country mix,” Netflix added in its most recent earnings letter.Netflix is projected to add 4.47M subscribers in the first quarter, according to the average of analyst estimates compiled by Bloomberg.Consensus forecasts reported by Bloomberg recently called for $9.78B in revenue and $5.16 in adjusted earnings per share for the September-end quarter, versus the company’s forecast for Q3 revenue of $9.73B and EPS of $5.10.
STREET FIGHT: Earlier this month, Piper Sandler upgraded Netflix, “a clear leader in streaming,” to Overweight from Neutral with a price target of $800, up from $650. The firm’s prior Neutral stance was centered around valuation, but now it appreciates “the company is expensive for a reason,” the analyst told investors. Moving forward, there are still levers to be pulled by Netflix in the ads-free business, particularly around pricing, “while the ads-tier has been largely de-risked heading into next year,” Piper argued.Meanwhile, Barclays downgraded Netflix to Underweight from Equal Weight with an unchanged price target of $550. Netflix’s “premium valuation” is predicated on revenue growth being at least in the low-double-digits “for some time,” but Barclays thinks this will get more difficult and that the company’s growth algorithm “will come with tradeoffs.” Even if Netflix gets to its revenue goal, the stock’s valuation “implicitly prices in” more than a doubling of the subscriber base from present levels, “which seems unrealistic,” contends the firm.
BIGGEST BULL: On the day after the company’s Q2 report, Pivotal Research reiterated a Buy rating and “Street high” year-end 2024 $800 price target on Netflix shares following “another strong quarterly result,” with better-than-expected Q2 subscriber growth driven by beats in all markets, modestly higher than forecast 17% revenue growth and increased 2024 revenue and operating margin guidance.More recently, on August 30, Pivotal raised the firm’s price target on Netflix to $900 from $800 and kept a Buy rating on the shares. The firm said it was raising its already Street-high price target driven by a move to a year-end 2025 target from 2024 previously and an increase in its medium- and long-term global subscriber forecasts to 384M by 2023 versus 370M previously. The higher subscriber forecast reflects on-going strong business momentum and a still relatively small share of the ultimate global opportunity, the analyst said. Netflix is “clearly the dominant paid global streaming player for the foreseeable future,” the analyst added.
BIGGEST BEAR: In its own earnings preview, Benchmark said it expects top line and profitability growth will increasingly depend on pricing and newer initiatives, such as ad-supported video, and extensions like gaming as volume growth moderates. Benchmark’s baseline forecast allows for 430M-plus global members in 2033, versus about 277M currently, at a 35%-plus operating margin, but the firm said it now views the margin assumption as “more tenable than the member forecast” given mounting consumer wallet resistance to price hikes as well as member growth concentration in much lower price point emerging markets. The firm, which argues that the market will be “especially attentive to any price hike announcements when Netflix reports earnings,” maintains a Sell rating and 2025 price target of $545 on Netflix shares.
PRICE HIKE: On August 6, Disney (DIS) announced it was adding continuous playlists to its core subscription on-demand offering in the U.S. Disney also announced higher prices for most of its streaming plans. “With this growing offering, and new ways to enjoy your favorite Disney+ content, Disney subscription plans remain among the best values in streaming today,” the company said in a statement. Most plans for Disney+, Hulu and ESPN+ starting on October 17 will cost $1 to $2 more per month, with the most expensive plans for Hulu, which include live TV, will cost $6 more per month, Disney noted.Earlier this week, Citi said it expects Netflix to report Q3 net additions modestly ahead of the 4.5M sell-side estimate, adding that investor focus will likely remain on the company’s advertising tier, sports content strategy and capital allocation. Citi would not be surprised if Netflix announced a U.S. price increase and it expects the stock to trade higher if a U.S. price hike announcement does come, but maintains a Neutral rating on the shares with a $675 target price.More By This Author:What Wall Street Is Saying About Big Banks Ahead Of Earnings Another Trio Of Biotech IPOs Made Friday DebutWall Street’s Top 10 Stock Calls This Week – Saturday, Oct. 12