Macquarie speaks of a “potentially momentous” quarterly update, while peers predict signs of hurried growth in the second half of the year.
Amid Hollywood’s historic double strike, Netflix is on deck after the market close on July 19 with its second-quarter report that will kick off media earnings season and shed light on its subscriber momentum, the progress of its cheaper advertising tier and the impact of its password-sharing crackdown.
Popular second-quarter originals from the streamer have included the likes of Queen Charlotte: A Bridgerton Story. Heading into the financial and operating update, Wall Street has been bullish on Netflix shares, which gained over the first half of 2023 and are up more than 50 percent year-to-date.
A slew of analyzes has in recent days and weeks raised their price targets on the company’s stock. After all, one key theme across the Street is an expectation of positive updates on the progress of the firm’s password-sharing crackdown and advertising tier rollout.
“Investors (are) focused on sub trends and ramping monetization efforts when Netflix reports,” TD Cowen analyst John Blackledge wrote in a July 11 report. “Investors will look for updates on Netflix’s monetization efforts – paid sharing and advertising tier.” He has designated the streamer’s stock as one of his “best ideas” for 2023. “Netflix’s paid sharing coupled with the ad tier rollout should drive long-term revenue upside, and the launch of paid sharing in the second quarter of 2023 along with the ramping ad tier should help drive membership and revenue growth in the second half of 2023.” specific, the TD Cowen analyst forecasts net subscriber growth of 2.37 million in the second quarter, “versus consensus of around 1.7 million,” and a net gain of 12.1 million and “revenue re-acceleration” in the second half of 2023. All in all, Blackledge reiterated his “outperform” rating and $500 stock price target.
That same day, UBS analyst John Hodulik boosted his Netflix stock price target from $390 to $525, while maintaining his “buy” rating. “We see Netflix as the main beneficiary as peers prioritize profits in streaming,” he wrote and highlighted positive data points. “Netflix introduced paid sharing more broadly in the second quarter. As a proxy for potential churn, we monitored Google search interest in ‘cancel Netflix,’ which saw less inflection in key markets launched in the second quarter than what was observed in Canada/Spain in the first quarter,” Hodulik wrote. “We continue to believe paid sharing will drive 5 percent-plus uplift to revenue and see the roll-out as key to driving scale in advertising with the growth in the ad-tier mix and better targeting. Netflix eliminated its basic ad-free tier in Canada (and de-emphasized in the U.S.), which we estimate could provide a 10 percent uplift to average revenue per user over time and should help scale the ad base faster than prior expectations.”
All in all, the UBS expert raised his estimates and predicted second-quarter financials would beat management’s guidance, adding that he and his team “still expect steadily second-half growth.” Hodulik now forecasts 3.6 million net subscriber gains in the second and 6.5 million in the third quarter, “bringing our ’23 estimate to 18 million (12 million prior; 9 million in ’22).” And he noted: “We expect third-quarter guidance to imply faster operating revenue and income growth, boosted by accretion from paid sharing.”
Evercore ISI analyst Mark Mahaney has also generally been a Netflix bull, having an “outperform” rating and $400 price target on the stock. But in the headline of a Monday report, he warned investors: “Tread Lightly Into Great (Subs) Expectations.”
“Buyside expectations in terms of net sub adds are almost certainly higher than (on the) Street, with the market likely looking for more like 4 million-5 million subs in the second quarter and a similar to higher level in the third quarter (5 -7 million),” Mahaney wrote. “If the positive intra-quarter sub trends reported by third-party tracking services are accurate, these expectations appear reasonable. But we would view them as likely limiting the opportunity for upside surprise and increasing the odds of a negative surprise.”
Explained Mahaney: “Thus, we would prefer to buy Netflix shares after the (results) rather than before and have issued a tactical ‘underperform’ call on Netflix for the (results).”
The Evercore ISI analyst also pointed out that Netflix’s stock has exceeded his $400 price target, “and we removed it from our top picks list last month, but we are sticking with (an) ‘outperform’ rating on Netflix as we believe this stock still has legs.” He noted his bull case for Netflix, which includes its stock price possibly hitting $500 by 2024, “driven by an incremental 20-30 million subs growth from ’23 to ’25 from SAVOD.
