Streaming giant Netflix Inc (NFLX) is set to report first-quarter financial results after the market close Tuesday. Here are the key items analysts are watching ahead of the report and what they see ahead for the streaming leader.
Truist Sizes Up Password Sharing: Several research firms have conducted surveys of streaming subscribers to see how important the crackdown on password sharing could be for Netflix's business.
“We raise our annuals on our password sharing survey and view consensus annual revenue/EBIT/EPS/members as high/reasonable/reasonable/reasonable hurdles,” Truist analyst Matthew Thornton said.
The analyst, who has a Hold rating and price target of $339, is positive on Netflix's growth with the password sharing crackdown and strength of advertising along with other potential catalysts like video games.
Thornton expects first-quarter subscriber additions for Netflix to come in ahead of consensus estimates, with an estimate of 3 million versus a Street estimate of 2 million.
“Download declines quarter-over-quarter were better 1Q23 than 1Q22 and we expect churn quarter-over-quarter to have been better 1Q23 than 1Q22.”
A survey from Truist shows that 33% of those who share passwords would no longer use Netflix and 28% would get their own new account.
“The result is a 4.5% lift to members, 5.7% lift to revenue and 19% or 19.8 million decline in total users.”
Related Link: How Subscribers And Prices Stack Up Between Streaming Rivals
Surveys Show Varying Results: Another survey on password sharing was conducted by NewStreet Research and showed different results.
In the survey, 54% of those who don’t pay for Netflix said they would sign up for their own membership. Of those who would pick a new membership, 70% said they would choose a non-ad supported tier, which could result in higher revenue for Netflix.
The survey also found that 70% of those polled have never cancelled their membership, 19% have cancelled once and 11% have cancelled more than once.
The survey showed that 80% of Netflix users ages 26 or older pay for their own account. The 18 to 25 age demographic shows strong password usage, with only 53% saying they pay for their own service.
“While only a small sample of the broader population of U.S. Netflix users, we think results bode well for traction of password restrictions once introduced to the market, and more broadly across the globe,” NewStreet Research analyst Dan Salmon said.
Salmon, who has a Neutral rating on Netflix, recently raised the price target on shares from $320 to $333.
“We are raising both paid member and average revenue per member estimates in UCAN beginning in 2H23, when our model assumes password restrictions begin to roll out.”
Tracked mobile app downloads and active user data from NewStreet Research suggest churn could be elevated in the first quarter.
The analyst said he expects the company to post paid memberships in the first quarter that are below estimates.
“We also review the latest global mobile app usage and download trends inside, which suggests continued easing of near-term usage, in part due to difficult comps.”
The analyst retains a Neutral rating due to expectations already baking in better traction on memberships and revenue, he said.
Competition against other streaming players could also be an item to watch, according to Salmon, who cites Netflix having peak share of 23% in July 2022 helped by “Stranger Things 4” before falling to 18% in February 2023.
“We believe this was in part due to a lack of hit content after the success of Wednesday and The Crown in 4Q22.”
What’s Next: Netflix is expected to post revenue of $8.17 billion in the first quarter, according to data from Benzinga Pro. The company is expected to post earnings per share of $2.85.
In last year’s first quarter, the company reported revenue of $7.93 billion and earnings per share of $1.33.
Shares of the streaming giant jumped after fourth-quarter results saw paid subscriber additions up 7.7 million, beating company estimates of 4.5 million and most analyst estimates.
Guidance from Netflix calls for first-quarter revenue hitting $8.172 billion and earnings per share of $2.82.
NFLX Price Action: Netflix shares are down 1.75% to $332.72 on Monday versus a 52-week trading range of $162.71 to $379.43.
Photo via Shutterstock.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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