Netflix Q1 Subscriber Estimates Too High? Analyst Cautions On Elevated Expectations, 'How Big Is The Beat' Mentality

Leading streaming company Netflix Inc NFLX is set to report first-quarter financial earnings on April 18.

An analyst sizes up expectations for Netflix's upcoming report.

The Netflix Analyst: Piper Sandler analyst Matt Farrell has a Neutral rating. Farrell also raised the price target from $550 to $600.

Related Link: Netflix Revamps Film Division with Genre-Specific Focus Under New Leadership

The Analyst Takeaways: After a strong fourth quarter from Netflix, expectations are elevated for the streaming giant in the first quarter, Farrell said.

Sentiment for Netflix went from "better than feared" in the third quarter to "how big is the beat" now, after the fourth-quarter report, he added.

"We believe investors are looking for material upside to the 4.5 million net adds number for Q1," Farrell said.

Netflix reported 13.12 million net adds in the fourth quarter. Expectations for the company from analyst are net adds down quarter-over-quarter, but above the 1.8 million net adds reported in the first quarter of last year.

"Given the run and the elevated expectations, we remain Neutral into the print but raise our PT to $600."

Key areas of focus from Netflix's first-quarter report will be the balance of subscribers and the average revenue per member; the pace of scaling for the company's advertising business; and margin expansion versus company investments.

Farrell said a key question is what inning of paid sharing Netflix is in at this point, with some bulls suggesting there is more growth from paid sharing.

The advertising segment for Netflix remains another key question with management previously saying it would have "a more substantial revenue" stream in 2025, the analyst said.

"We continue to wait for the pivot to ‘walking' from ‘crawling,' but as the ad-tier competitive landscape intensifies, we suspect scale needs to happen sooner rather than later."

"Netflix has proven itself to be the clear leader in streaming, we would prefer for a pullback in order to get more constructive."

NFLX Price Action: Netflix shares trade at $620.65 on Friday versus a 52-week trading range of $315.62 to $639.00. Shares of the streaming company are up 83% over the last year.

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