What Wall Street’s experts say about Netflix ahead of earnings

Netflix (NFLX) is scheduled to report its first quarter 2024 financial results and business outlook on Thursday, April 18. 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 fourth quarter, the company reported global streaming paid net additions of 13.12M, calling it out as “our largest Q4 ever.”

Netflix also noted in its quarterly letter to investors that it forecasts Q1 paid net additions to be down sequentially, but up compared to the prior year. Netflix said: “Similar to prior years, we expect paid net additions to be down sequentially (reflecting typical seasonality as well as some likely pull forward from our strong Q4’23 performance) but to be up versus Q1’23 paid net adds of 1.8M.”

Netflix is projected to add 4.84M subscribers in the first quarter, according to the average of analyst estimates compiled by Bloomberg. Consensus forecasts reported by Bloomberg recently called for $9.265B in revenue and $4.55 in adjusted earnings per share for the March-end quarter, versus the company’s forecast for Q1 revenue of $9.24B and EPS of $4.49.

NETFLIX EXPECTS CONSOLIDATION, BUT NOT BUYING LINEAR ASSETS: Netflix said in its last quarterly letter to investors: “Entertainment has always been a fast changing industry – with new technology and consumer behavior patterns creating new business models. Choice and control are the price of entry in modern entertainment, and that is streaming. It’s what consumers want, and we believe it’s the best way for our industry to stay relevant and growing… As our competitors adjust to these changes, it’s logical to expect further consolidation, particularly among companies with large and declining linear networks. We’re not interested in acquiring linear assets. Nor do we believe that further M&A among traditional entertainment companies will materially change the competitive environment given all the consolidation that has already happened over the last decade (Viacom/CBS, AT&T/Time Warner, Disney/Fox, Time Warner/Discovery, etc.). But we expect our industry to remain highly competitive given: the franchise strength and programming expertise within traditional entertainment companies; ongoing heavy investment from large tech players like YouTube, Amazon and Apple; and broader competition for people’s time, including gaming and social media.”

ANALYSTS TAKE DIFFERENT SIDES AFTER LAST REPORT: On the day after Netflix’s last earnings report, Macquarie analyst Tim Nollen upgraded Netflix to Outperform from Neutral with a price target of $595, up from $410. Netflix reported “excellent” Q4 results and outlook as its efforts to boost subscribers, revenue and earnings are bearing fruit, the analyst told investors. The firm said the company’s profit upside is now coming into view from the positive changes it has implemented in the past year, which merits higher estimates and stock multiple. The firm added that it had been waiting for confirmation that Netflix’s moves were paying off. “We have that now, and upgrade to Outperform,” it wrote.

Meanwhile, Deutsche Bank analyst Bryan Kraft downgraded Netflix to Hold from Buy with a price target of $525, up from $460. Netflix is still the best story in media among the vertically integrated producers, programmers and distributors, the analyst told investors. The firm said its decision to downgrade “was a difficult one” as it increased earnings and free cash flow estimates, but Deutsche added that Netflix’s leadership position was fully priced into the stock at then-current levels. The firm believed valuation left little room for multiple expansion given that it thinks 2024 will be peak earnings growth for Netflix at 38%.

About a week later, Seaport Research analyst David Joyce downgraded Netflix to Neutral from Buy without a price target. The analyst cited valuation for the downgrade with the shares having “rapidly achieved” the firm’s recently-increased $576 prior price target. Using an “aggressive advertising case” of 50% of subscribers taking the advertising tier at current 7.6% TV time usage share going out to 2027, layered on top of estimated unaffected share price value of $271, could imply 6% of upside from here, the analyst told investors. Seaport points out that much of the implied advertising opportunity has lifted Netflix’s valuation parameters “far above normal ranges.”

More recently, on April 12, Morgan Stanley analyst Benjamin Swinburne raised the firm’s price target on Netflix to $700 from $600 and kept an Overweight rating on the shares. The firm is raising estimates and sees a compound annual EPS growth rate of 25% for FY24-FY28. This level of revenue growth at the company’s revenue scale supports a premium multiple, the analyst tells investors. The firm’s analysis suggests that content from outside the U.S., original programming and a deep library may all be underappreciated competitive advantages for Netflix, the analyst added.

Earlier this week, Guggenheim raised the firm’s price target on Netflix to $700 from $600 and kept a Buy rating on the shares. The analyst says investor confidence into the company’s Q1 earnings report is high. The firm’s data analysis indicates incremental download strength in the U.S. and Canada but sequential slowing in other international regions, contributing to its below buy-side member growth estimate. Guggenheim sees uncertainty regarding the relative pace of Netflix’s core member growth and the likely non-recurring impact of an initial contribution from the implementation of paid-sharing policies. Looking at the bigger picture, however, it believes Netflix continues to have “significant runway” for sustained global membership growth.

CAUTIOUS BENCHMARK: In its own earnings preview, Benchmark said it estimates the stock’s current valuation more than recognizes a favorable decade forward growth profile. Benchmark, which forecasts Netflix achieving about 455M global members in 2033 with about a 35% operating margin, maintains a Sell rating and $440 price target as it sees “some giddiness underlying Netflix’s most recent stock price run even with global streaming leadership and unique profitability achievement.”

SENTIMENT: Click here to check out recent Media Buzz Sentiment on Netflix as measured by TipRanks.