Netflix Subscriber Growth, Content, Video Games Launch: 5 Analysts Weigh In

Netflix reported second-quarter earnings Tuesday night that saw the streaming platform gain 1.5 million subscribers and post revenue of $7.3 billion.

Here’s how analysts are reacting to the company’s subscriber figure, content slate and first comments on video game launch.

The Netflix Analysts: KeyBanc analyst Justin Patterson has an Overweight rating on Netflix Inc NFLX and lowered the price target from $650 to $645.

Morgan Stanley analyst Benjamin Swinburne has an Overweight rating and $650 price target.

Raymond James analyst Andrew Marok has a Market Perform rating with no price target.

Rosenblatt analyst Mark Zgutowicz has a Neutral rating and $450 price target.

Needham analyst Laura Martin has an Underperform rating and no price target.

Related Link: Why Netflix Is Still The Content King

Netflix Analysts On Subscriber Growth: Netflix reported better subscriber additions than analysts expected, which led to a slight beat on revenue.

“Pockets of improved customer acquisition activity in parts of Latin America, combined with the upcoming spike in content in 4Q Keep us bullish on shares,” Swinburne said.

Some analysts were less bullish on Netflix, showing some concern around subscriber growth. 

“We believe there needs to be evidence of the ability to sustain healthy subscriber growth post-pandemic before the stock narrative improves,” Marok said.

Competition in the streaming market wasn’t lost on Zgutowicz, who said this could weigh heavier on Netflix going forward.

“Management lightly called out competition from Disney+,” Zgutowicz said, adding that many competitors are enough to lead to Netflix subscribers pausing their accounts and then restarting.

Compression to Netflix’s share price could be coming given the low subscriber growth, Martin said. 

“We would suggest that Netflix must add a second, lower-priced option to compete,” the Needham analyst said, noting that Netflix’s main competitors including the Walt Disney Company DIS have cheaper or lower ad-supported monthly plans available.

Content Is King: Swinburne said that content investment will accelerate in the second half of the year, which could lead to growth in net additions in subscribers.

The subscriber decline in the UCAN region came with the re-opening of many parts of the region and also a lighter than expected content slate in the second quarter.

A strong content slate for the third quarter was highlighted by Netflix, but Zgutowicz cautions on how strong the lineup will be given the guidance for 3.5 million additional subscribers added in the third quarter.

“Guidance of +3.5M net adds does not suggest content will cure its sub acquisition woes,” Zgutowicz said.

Netflix said 30% of its customer additions are driven by specific content. Martin questions who in the UCAN region doesn’t already subscribe to Netflix, hinting at a lack of subscriber growth in the region and also questioning the impact of competition.

“Netflix reiterated that it is seeing no impact from competition, but capitalist theory says that’s impossible,” Martin said.

Video Games Coming: Many of the analysts are cautious on the company’s push into video games, an area hinted at earlier this year. 

“Gaming is expected to represent an immaterial portion of content spend and will be scaled up gradually over time as Netflix learns more about subscriber behavior,” Patterson said.

Netflix will start its push into video games with mobile games, and the initial launch could be realitvely small according to the analysts.

“In Netflix tradition, this will be an incremental investment strategy open to organic and inorganic growth but with a preference towards organic,” Swinburne said.

A potential acquisition in the mobile gaming space was mentioned by Zgutowicz, who is bullish on Netflix’s video game aspirations. The analyst also expects Netflix to aggressively push to lure developers away from other companies to build out Netflix’s gaming business.

Martin would rather see Netflix push into live content like news, concerts and sports to appeal to a larger audience.

NFLX Price Action: NFLX shares are down 3.63% to $511.79 on Wednesday.

Photo: courtesy of Netflix.