Netflix ( NFLX ) reported its fiscal second-quarter earnings Thursday after the market closed — but the streamer will once again have a high bar.
“For NFLX stock, we are overpriced, but we remain bullish given the large scope for growth going forward,” Morgan Stanley analyst Benjamin Swinburne wrote in a note ahead of the report.
Investors have appreciated the company’s foray into sports and live events. Meanwhile, its ad tier continues to gain traction. Shares soared as a result, with shares up about 33% since the start of the year.
At Wednesday’s close, Netflix traded at $647.46 a share and was little changed before Thursday’s results. Shares closed at a high of $691.69 on November 17, 2021.
But the stock’s recent run-up has led to some trepidation on Wall Street.
“We remain cautious for the company’s Q2 2024 release,” wrote Citi analyst Jason Bassinette. “We maintain our neutral rating and $660 target price.”
Here’s what Wall Street expects from the report, according to Bloomberg consensus estimates:
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Revenue: $9.53 billion (Netflix guidance: $9.49 billion) vs. $8.19 billion in Q2 2023
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Earnings per share (EPS): $4.74 (Netflix guidance: $4.68) vs. $3.29 in Q2 2023
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Net Subscriber Addition: 4.7 million and 5.9 million in Q2 2023
In May, Netflix announced that it won the streaming rights to two NFL games that will air on Christmas Day as part of a three-season deal. The company told advertisers in its May preview presentation that its ad tier has reached 40 million global monthly active users — a significant improvement from the 15 million users the company disclosed back in November and an increase of 35 million users from the previous year. Period.
The development comes as the streamer raised the price of its ad-free subscriptions in an attempt to attract more users to the ad-supported offering. Netflix’s password-sharing crackdown has boosted top-line growth and increased the site’s overall subscriber base, adding 9 million more users in the first quarter.
But it hasn’t been an entirely smooth road upwards. In April, Netflix said it would stop reporting subscriber numbers early next year, raising concerns about its long-term subscriber growth and sending shares tumbling.
Swinburne warned that Netflix also has “larger competitors that will see their own business mature over the next few years.” “Obvious examples are Alphabet’s YouTube and Amazon’s Prime Video. Less obvious are other sources of consumer time, such as social media, which is increasingly populated by short-form video.”
“Finally, there is long-term risk, whose own margins are generated by external earnings, [a new army] Or many people can assemble,” he said. “The ability of AI tools to dramatically lower the barriers to entry in premium, professional video comes to mind in this case.”
While the ad tier has had initial success, analysts caution that the initiative still has a long way to go. Bank of America analyst Jessica Reif Ehrlich said her team sees the ad “as a long-term story.” [does] Don’t expect material revenue contribution until 2025.”
He cited the largesse of new inventory with the introduction of several competing ad-supported services “against the backdrop of a mixed advertising environment.” However, the analyst reiterated his buy rating and raised his price target to $740 per share, up from $700 previously.
“We are raising our target several times to reflect continued momentum in the underlying business,” he said. “Backed by its world-class brand, leading global subscriber base, position as an innovator and increased visibility into growth drivers, we believe Netflix should continue to outperform.”
Alexandra Canal Senior reporter at Yahoo Finance. Follow her on X @alli_kanal, LinkedIn, and email [email protected].
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