Tuesday's Market Minute: Previewing Netflix (NFLX) Earnings

Netflix NFLX reports 1Q 2023 earnings after the bell today. FactSet’s consensus view is that EPS will be $2.86 cents and revenue will be $8.2 billion. Analysts also expect the subscriber base to grow by 2.26 million, although this is the first quarter Netflix itself hasn’t provided a specific forecast

 As it saturates markets and competes with a host of other streaming services (some of which are undergoing M&A deals), Wall Street is still looking for Netflix to grow. Netflix’s strategy is twofold: it has added an ad-supported tier like many of its competitors. The lack of any ads was one of Netflix’s stand-out differences, but the company thinks that the lower-priced tiers will attract more subscribers and open a new revenue stream that others were already taking advantage of.

Secondly, Netflix has said it will crack down on password sharing, although it hasn’t begun to roll that out widely yet. This, in Netflix’s ideal world, would push many other people already enjoying its services to get their own accounts. In practice, users have been vocal on social media about their distaste for the move – though it remains to be seen whether they would lose a chunk of accounts after rollout.

Lastly, to keep subscribers when making unpopular decisions, Netflix must continue producing A-tier content. This requires it to continue spending big on content: it spent $16.8 billion on content in 2022, a staggering sum, even if it’s less than the $17.7 billion in 2021. However, Netflix wrote in its 4Q 2022 shareholder letter that it believes it will “now be generating sustained, positive annual free cash flow going forward,” estimating $3 billion in FCF this year. The content issue has been a long-ongoing issue for Netflix, and one it has been remarkably successful at – have they nailed the winning formulas, or will their grip eventually slip?  

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