7 Netflix Analysts Size Up Password Sharing Crackdown, Hollywood Strike's Impact, Ad Opportunity And More

Streaming giant Netflix Inc NFLX reported second-quarter financial results and subscriber figures after the market close Wednesday. Here’s what analysts are saying about the quarterly report.

The Netflix Analysts: Morgan Stanley analyst Benjamin Swinburne has an Equal-weight rating and price target of $450.

Guggenheim analyst Michael Morris has a Buy rating and $500 price target.

Baird analyst Vikram Kesavabhotla has a Neutral rating and $340 price target.

Oppenheimer analyst Jason Helfstein has an Outperform rating and raised the price target from $500 to $515.

Needham analyst Laura Martin has a Hold rating and no price target.

KeyBanc analyst Justin Patterson has a Sector Weight rating and no price target.

William Blair analyst Ralph Schackart has an Outperform rating and no price target.

Morgan Stanley On Netflix: Netflix reported better-than-expected second-quarter subscriber additions, and its paid sharing progress was strong, Swinburne said in a note. 

“By 4Q, we expect it to deliver on its goal to reaccelerate revenue growth to double digits,” the analyst said.

The analyst calls the crackdown on password sharing a success; the strategy was viewed by some as risky due to the potential of increased churn.

“Not only is the risk now behind Netflix, but the incremental 4 million net adds upside in 2Q shows they are converting those highly engaged ‘borrowers’ to new members.”

Related Link: Trading Strategies For Netflix Stock After Q2 Earnings

Guggenheim On Netflix: Netflix results were mostly in line with estimates, with paid member growth ahead of estimates and revenue missing the mark, Morris said. 

“Revenue is ahead of pre-paid sharing rollout levels in all regions, indicating that the company has moved past any initial churn impact,” the analyst said. 

Revenue is expected to accelerate more in the fourth quarter, led by paid sharing subscriber growth, he said. 

Baird On Netflix: Kesavabhotla said Netflix reported encouraging signs in the second quarter, but expectations remain high for the streaming leader.

“Commentary around content delays associated with the strikes may undermine the FCF strength and extend uncertainty regarding the content pipeline,” the analyst said. 

Netflix's quarterly report has a number of encouraging items for the company for the longer-term, he said, calling this period a “substantial change for the platform.”

“We therefore are not surprised to see some initial weakness in the after-market and suspect we may see some profit-taking in (Thursday’s) trading.”

Oppenheimer On Netflix: The paid sharing launch was slowly rolled out, which may have helped with the churn impact, Helfstein said. 

“While slow roll of paid sharing was surprise to investors reflected in flat UCAN ARM q/q, we think mgmt. is deliberately timing the impact to premium subs around seasonal usage, content launch, and impact of strike on linear TV in September,” the analyst said. 

Needham On Netflix: The average revenue per membership was weak in the second quarter, down 3% year-over-year, and the outlook for the metric remains weak for the third quarter, Martin said. 

The password sharing crackdown has been completed in 90% of the company’s market, lowering the risk of cancellations going forward, the analyst said. 

“We believe that rev growth must come from price increases,” Martin said.

Needham sees upside to Netflix’s margin for the full fiscal year depending on the length of the writer and actor strikes.

“We expect margins expansion, driven by lower content spending and market costs if either strike persists into 4Q23.”

A prolonged strike could make it hard for streaming companies to raise prices, the analyst said. 

“We recommend investors stay on the sidelines of NFLX.”

KeyBanc On Netflix: Netflix will likely focus on volume reacceleration before a focus on average revenue per member, which could come in fiscal 2024, Patterson said.

“While we are encouraged that cancel risk was low and future price increases now have a churn reduction mechanism, we view valuation and a FCF peak in 2023E as NT overhangs,” the analyst said. 

The rollout of password sharing crackdowns went smoothly, which eliminates some risk to the long term, he said, adding that the ad-supported tier can help with churn reduction if price increases come in 2024.

William Blair On Netflix: Expectations from Netflix investors were high for the second quarter, which meant the revenue miss and guidance didn’t do enough to send shares higher, Schackart said. 

“While the ad-supported platform is still in need of additional refinement, and not yet accretive to ARM, we remain optimistic that both this new tier and paid sharing will provide tailwinds to ARM through the medium term,” the analyst said.

Netflix is well-positioned to be a streaming winner going forward, he said. 

“We believe 2023 stock upside will likely be driven by a combination of potential multiple expansion and revenue growth as the company accelerates growth, expands margin and increases free cash flow throughout 2023.”

NFLX Price Action: Netflix shares are down 9.42% to $432.58 on Thursday versus a 52-week trading range of $188.50 to $485.

Read Next: Netflix Password Crackdown Gamble Pays Off, Co-CEO Says Retention Is Quite Good 

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