This Thursday, investors will turn their attention to Netflix. Whether they'll also "chill" remains to be seen, as much hinges on the financial results and subscriber trends the global streaming giant unveils after the stock market closes on July 18.
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| Netflix co-CEO Ted Sarandos CHARLEY GALLAY/GETTY IMAGES |
Netflix's stock has been performing strongly this year, rising approximately 12 percent since the company's first-quarter earnings report in mid-April and gaining 41 percent year-to-date, outpacing the broader S&P 500 index's 17 percent increase.
However, Netflix's management previously indicated that second-quarter subscriber growth is expected to be lower than the 9.3 million additions seen in the first quarter, which had pleasantly surprised investors.
The company is also likely to discuss the performance of its second-quarter content lineup, featuring series like "Ripley" starring Andrew Scott, "Eric" with Benedict Cumberbatch, and the London-based superpowers drama "Supacell," as well as films such as "Scoop" and Zack Snyder’s "Rebel Moon — Part Two: The Scargiver" towards the end of the quarter.
Ahead of Thursday’s earnings update, several Wall Street analysts have raised their stock price targets for Netflix, a trend similar to what was observed before the company’s first-quarter results.
On Monday, MoffettNathanson analysts Michael Nathanson and Robert Fishman increased their Netflix stock price target by $35 to $565 while maintaining their “neutral” rating.
“For the second quarter, we are raising our Netflix global net paid subscriber addition estimate by 500,000 to 5.5 million, driven by an improved U.S./Canada subscriber addition estimate of 2.0 million (versus 1.5 million previously),” the MoffettNathanson analysts explained. “As a result of our improved 2025 earnings per share estimate ($22.35 versus $22.25 previously) and a higher market multiple, we raise our Netflix price target.”
Netflix has made notable strides in curbing password-sharing, with the share of users accessing the platform through another household's account dropping from 15 percent a year ago to just 9 percent in the past quarter, according to a recent report. Analysts from Fishman and Nathanson highlighted this progress, noting that while there are more accounts to address, the initial low-hanging fruit has been tackled.
The analysts also pointed out Netflix's momentum in increasing daily engagement among users, which they see as a positive indicator for converting password-sharers into paying subscribers, as well as for driving pricing and generating ad inventory.
Bank of America analyst Jessica Reif Ehrlich provided a more bullish outlook, raising her stock price target for Netflix from $700 to $740 and reiterating a "buy" rating. In her report titled "Well suited for healthy subscriber growth," she emphasized optimism regarding Netflix's long-term prospects. She cited expectations for strong net additions and revenue forecasts, projecting 4.6 million new subscribers and $9.49 billion in revenue. Additionally, she anticipates significant growth in advertising revenue in 2025 and 2026.
Reif Ehrlich underscored that Netflix's strategic advantages in the media ecosystem, its scalability in streaming without the burden of protecting declining linear assets, and its potential in advertising, including recent moves into live and sports programming like NFL content, contribute to her bullish thesis. She concluded by affirming expectations for robust revenue growth, ongoing margin expansion, and substantial free cash flow growth over the coming years.
Benjamin Swinburne, an analyst at Morgan Stanley, raised his Netflix stock price target on Monday from $700 to $780 and reiterated his "overweight" rating. He also revised his subscriber net addition estimate to 7 million for the latest quarter, projecting more than 30 million additions for the full year 2024.
"Our analysis of Netflix engagement data continues to demonstrate its exceptional performance, particularly in international content and consumption depth," Swinburne noted. "Strong execution in core operations, initiatives to address paid sharing, and introduction of ad-supported tiers aimed at reaching more price-sensitive audiences are all contributing factors towards potentially achieving record net additions in 2024."
However, Swinburne cautioned that Netflix's advertising strategy remains unproven even after 18 months, stating, "Scaling ads remains a significant challenge. Our view is that Netflix should aim to enhance its position akin to YouTube rather than pursuing a model similar to traditional broadcasters like CBS."
Explaining his bullish outlook, Swinburne highlighted, "While much optimism is already priced into Netflix shares, we maintain a positive stance due to the substantial growth opportunities that lie ahead. We acknowledge paying a premium for Netflix's established track record over two decades, adeptly navigating disruptions and capitalizing on opportunities. Factors such as Netflix's modest share of TV viewing time, consistent innovation and execution across market cycles, and the advantages derived from its scale, robust free cash flow generation, and strong balance sheet contrast sharply with competitors who are largely scaling back."
In summary, Swinburne reaffirmed Morgan Stanley's "overweight" rating on Netflix, emphasizing the company's potential for continued growth amidst a rapidly evolving media landscape.
TD Cowen analyst John Blackledge, in a report dated July 9, raised his full-year 2024 subscriber estimate for Netflix and increased his stock price target from $725 to $775, reaffirming his "buy" rating. He anticipated second-quarter user net additions of 5.19 million, surpassing the Wall Street consensus of 3.72 million at that time.
"We expect investors to focus on updates regarding Netflix's expanding ad tier, efforts to address paid sharing, and the content lineup for the second half of the year," Blackledge emphasized. He noted that Netflix continues to benefit from its initiatives against paid sharing, strong underlying business demand, and the growth of its ad-supported tier. Blackledge also pointed out that Netflix's decision to retire its basic tier in the U.K. and Canada is expected to further bolster momentum for its ad-supported offerings.
Highlighting findings from a TD Cowen survey, Blackledge stated, "In the second quarter, Netflix retained the top spot as the most frequently used platform for viewing video content on TVs, with 23 percent of respondents, followed by YouTube at 15 percent, and basic cable at 12 percent." He concluded, "We believe Netflix's extensive content catalog spanning multiple genres provides a sustainable competitive advantage over time."
Meanwhile, KeyBanc analyst Justin Patterson also raised his Netflix stock price target ahead of the earnings report, increasing it from $707 to $735 while maintaining an "overweight" rating. Patterson's analysis underscored recent price increases by competitors and low churn rates, which he believes support Netflix's ability to implement price hikes in the coming quarters.
JPMorgan analyst Douglas Anmuth recently raised his stock price target for Netflix from $650 to $750, maintaining an "overweight" rating. He anticipates that Netflix will add between 5 million to 6 million net subscribers in the second quarter.
Anmuth highlighted both the positives and challenges facing Netflix's shares ahead of its latest results. He acknowledged that while paid sharing has become more normalized, it continues to impact the company. Despite these challenges, Anmuth expressed optimism, recognizing the high expectations leading up to the earnings update.
His bullish perspective centers on Netflix's extensive scale, robust engagement metrics, and diverse content offerings, which he believes position Netflix as the default choice for consuming TV, film, and other long-form content.
Anmuth also expects Netflix's expansion into sports and sports-related content to continue, forecasting a broader push into live sports as Netflix gains leverage in this domain.
In contrast, Wedbush Securities analyst Michael Pachter maintained his "outperform" rating on Netflix with a $725 price target, citing a more conservative prediction of second-quarter global net subscriber growth at 3.8 million, compared to a consensus figure of 4.8 million.
Pachter emphasized that Netflix's ad-supported tier has effectively limited churn, and he anticipates its contribution to revenue growth expanding through the end of 2025, driven by improved advertising solutions, expanded partnerships, and more live events.
Michael Pachter concluded with confidence, stating, "Netflix has found the winning formula with global content creation, effectively managing costs while increasing profitability. We anticipate Netflix will continue to enhance profitability and generate growing free cash flow."
He reiterated his stance that Netflix has emerged as the dominant force in the "streaming wars," asserting, "Netflix has established a virtually insurmountable lead in the streaming arena, with competitors struggling to replicate its successful business model."
As investors and analysts await Thursday's earnings call, they are keen to hear management's insights on several emerging areas. These include Netflix's future plans in sports, updates on subscriber and advertising trends, and details about the scheduled launch of two "Netflix Houses" in 2025 in King of Prussia, PA, and Dallas, TX.
These immersive experiences will showcase merchandise, food, and interactive offerings themed around Netflix's popular franchises such as Bridgerton, Stranger Things, and Squid Game.
