When Netflix, led by co-CEOs Ted Sarandos and Greg Peters and executive chairman Reed Hastings, reports its third-quarter financial and subscriber figures on Thursday, Oct. 17, will investors get to chill or will the debate about the stock’s outlook get heated?
The global streaming giant’s original content lineup had something for the romantically inclined as well as the thrill seekers, thanks to the likes of Emily in Paris season 4, The Perfect Couple, Beverly Hills Cop: Axel F, A Good Girl’s Guide to Murder, and the fourth and final season of The Umbrella Academy.
Netflix ended June with 277.65 million global subscribers after adding 9.33 million in the first quarter of 2024 and 8.05 million in the second. Management has forecast third-quarter net additions to come in below the year-ago period when it added 8.76 million.
When the streamer reports its latest quarterly results and shares its outlook on Thursday, investors are once again keeping eyes and ears out for subscriber trends, the progress of the company’s cheaper advertising tier and other newer businesses, such as its Netflix Games unit, for which it recently hired Epic Games veteran Alain Tascan as president, and possible insight on future moves.
Heading into the earnings report, Wall Street analysts mostly remained bullish, with several further raising their stock price targets, but at least one questioned if the stock has gotten ahead of itself given its gains so far this year. As one expert noted on Oct. 7, Netflix shares were as of that day up 12 percent since the streamer’s second-quarter earnings update and 48 percent year-to-date, compared with a 21 percent gain for the broad-based S&P 500 stock index.
“We remain positive on Netflix shares heading into third-quarter earnings … while recognizing elevated expectations,” JPMorgan analyst Doug Anmuth wrote in acknowledging this sentiment in his preview. But he stuck to his “overweight” rating and $750 stock price target. “We remain bullish on Netflix’s ability to grow revenue in the midteens in 2024 and 2025 and low double-digits in 2026, further expand margins, and drive multiyear free-cash-flow growth.”
TD Cowen analyst John Blackledge in an Oct. 7 note similarly reiterated his “buy” rating on Netflix shares, but boosted his Netflix stock price target by $45 to $820. In his report, entitled “Expect Continued Strong Member Growth and Rising Margins,” he forecast net subscriber additions of 4.88 million, above the Wall Street consensus of around 3.9 million, “reflecting further paid sharing tailwinds, AVOD momentum and underlying business strength.”
Blackledge also noted positive research findings, writing: “Our third-quarter consumer survey shows Netflix remains the top choice for living room viewing.” But management color and body language on the path ahead will be key again in the earnings release and on the management call. “Investors will look for updates around Netflix’s ad tier monetization, fourth-quarter content slate, and underlying member trends,” he said.
On that same day, Barclays analyst Kannan Venkateshwar downgraded Netflix from “equal weight” to “underweight” though, while keeping his price target at $550, citing concerns over the company’s financial growth outlook compared to its market value as the key reason.
In a report entitled “Growth algorithm getting more complex,” he highlighted: “Netflix’s premium valuation is predicated on revenue growth being at least in the low double digits for some time. We think this’ll get more difficult.” Added the expert: “Even if Netflix gets to its revenue goal, valuation implicitly prices in more than a doubling of sub base from [the] present level, which seems unrealistic.”
Arguing that such recent initiatives as the password-sharing crackdown and ad tier push have been “pulling forward” growth and led to “unrealistic” long-term expectations among investors, Venkateshwar concluded: “Present valuation appears out of sync with [the company’s] probable growth path.”
The Barclays analyst also noted that driving its ad business to the next level may come with downsides. To offset slowing pricing and subscriber growth upside in the U.S./Canada and Europe, the Middle East, and Africa, the two biggest contributing regions to Netflix growth, “the company will have to accelerate advertising revenue growth a lot faster than it has managed thus far,” the analyst highlighted.
“This may force the company to do away with the basic tier in more markets and potentially even the standard tier at some point to increase the price gap between the ad tier and non-ad tiers significantly and force more of the base to watch ads,” Venkateshwar concluded. “It is tough to see how this doesn’t come with its own engagement tradeoffs.”
However, also on the same day, Piper Sandler analyst Matt Farrell upgraded his Netflix rating from “neutral” to “overweight,” boosting his stock price target by $150 to $800 and touting the company’s leadership position in the streaming sector.
“Our prior neutral stance was centered around valuation, but now, we appreciate the company is expensive for a reason,” he wrote. The analyst also touted room for price increases and reduced risks for the firm’s ad business, while suggesting that the Wall Street consensus for Netflix’s margin outlook for 2025 and 2026 could prove too conservative.
Guggenheim analyst Michael Morris also remains upbeat, raising his 12-month stock price target from $735 to $810 and maintaining his “buy” rating. “While Netflix shares are up 56 percent year-to-date compared to 22 percent for the S&P 500, we continue to see attractive shareholder returns over the next 12 months fueled by 1) further global member growth potential, 2) accelerating advertising revenue growth driven by tier adoption and expanded third-party relationships, and 3) content engagement leadership yielding operating leverage and margin expansion well into mid-30 percent over the next five years,” he wrote in a report.
He expects user trends to remain “the critical sentiment driver … as the company continues to lap its initial password-sharing initiatives” and boosted his third-quarter member net additions estimate to 5.2 million from 2.5 million, “with our analysis of download data implying less of a slowdown than we previously had forecasted.
“Netflix Inc: One Upon A Time… in Hollywood” was the title of the earnings preview from Morgan Stanley analyst Benjamin Swinburne. Reiterating his “overweight” rating and boosting his price target by $40 to $820, he explained: “We remain bullish shares on a long runway for revenue growth, above-consensus expectations for operating leverage and earnings per share, and a deepening competitive moat.” Finally, his analysis of Netflix’s most recent engagement report, dominated by U.K.-produced shows, “reinforces our bullish view,” the expert highlighted.
Pivotal Research Group analyst Jeff Wlodarczak remains the biggest Netflix bull on the Street though. At the end of August, he raised his already Street-high stock price target from $800 to $900 and reiterated his “buy” rating, driven by a move to a year-end 2025 target price from a year-end 2024 target previously. He also cited “an increase in our medium-/long-term global subscriber forecasts to 384 million total subscribers by ’30” from 370 million, “reflecting on-going strong business momentum and a still relatively small share of the ultimate global opportunity.”
His core view is still the same: “Netflix is clearly the dominant paid global streaming player for the foreseeable future with the ability to generate solid subscriber growth and average revenue per user (ARPU) growth, given its already massive scale continues to expand margins and generate large healthy free cash flow growth, a powerful combo.”