Netflix Earnings Expectations Prompt Bull To Revise Stock View: 'Expect Growth To Accelerate Next Year...'

As the earnings season kicks off for tech stocks this week, Netflix Inc. NFLX is feeling the pressure of balancing its growth aspirations and margin targets.

According to a report by Barron’s, UBS analyst John Hodulik suggests that benefits from Netflix’s clampdown on password sharing and the introduction of ad-supported streaming may not be immediate. Consequently, Hodulik lowered his target price on the stock from $525 to $500, while maintaining a Buy rating.

"For 3Q [third quarter], we expect flat ARPU [average revenue per user]…given limited price increases but expect growth to accelerate next year as accretion from paid sharing builds & new price ups are likely implemented," Hodulik wrote.

Despite a 21% increase in the stock’s value this year, it has seen a significant drop from over $450 in July. This decline has been primarily due to investors’ disappointment over cautious remarks on margins and subscriber growth last month.

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Hodulik anticipates that Netflix will report the addition of about six million subscribers in the third quarter on Wednesday, with a forecast of stronger growth in the fourth quarter. However, he also cautioned that margin expansion might be moderate.

The streaming giant is currently trying to strike a balance between enhancing its margins and not dissuading subscribers. The last increase in prices for its ad-free service was in January 2022, but Netflix plans to raise prices again following the end of the Hollywood actors’ strike, as reported by The Wall Street Journal.

However, some research indicates that consumers are growing weary of price hikes across various streaming platforms. A study by HundredX found that streaming prices have risen to the point where customers are considering returning to cable TV providers.

As of the market close on Monday, Netflix shares were trading at $361.23 as per Benzinga Pro.

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