It’s that time of year again. The Q2 earnings season has just kicked off, and market observers can get the popcorn out to watch the usual drama unfold.
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Talking of popcorn and drama, Netflix (NASDAQ:NFLX) will deliver its Q2 readout on Wednesday (July 19), following the markets’ close.
Recent times have seen a shift in the streaming giant’s business model, with the company introducing an ad-tier and cracking down on password sharing as part of its efforts to combat a dwindling subscription count and increase revenue.
It’s a recipe for success, says Wedbush analyst Alicia Reese. “We think Netflix has reached the right formula with its global content to balance costs and generate increasing profitability,” she explained. “At the same time, its ad-supported tier and password sharing crackdown should further boost cash generation.”
A recent Wedbush survey tracking current trends gives credence to Reece’s take. The main findings of the survey indicate two key points. Firstly, there has been an increase in awareness and adoption of Netflix’s ad subscription tier. Secondly, the response to Netflix’s measures against password-sharing has been predominantly positive. “As such,” says Reece, “we think Netflix’s Q2 earnings results will meet or exceed Street expectations, and we expect shares to rise on the print.”
The Street is looking for revenue of $8.276 billion, above Netflix’s guide of $8.242 billion. Reece expects Q2 global net paid subscriber growth of 2 million compared to the guide of 1.751 million – roughly the same as Q1’s increase – and the consensus figure of 1.769 million.
With 200,000 subscriber additions expected in UCAN (US, Canada, Australia & New Zealand), Reece is calling for “very modest ARPU growth” of 2% YoY in UCAN, although she believes that based on what looks like “solid uptake” of Netflix’s proposed family plans following its recent password-sharing crackdown, there’s the potential for “meaningful upside” to her calls.
All in all, ahead of the print, Netflix keeps its spot on Wedbush’s Best Ideas List while Reece maintains an Outperform (i.e., Buy) rating and $475 price target. However, following the strong year-to-date performance (up by 51%), there’s potential upside of just 5.5% from current levels. (To watch Reece’s track record, click here)
Elsewhere on the Street, the stock garners an additional 18 Buys, 14 Holds and 2 Sells, for a Moderate Buy consensus rating. That said, the share price has now surpassed the $424.63 average target. It will be interesting to see whether the analysts update their price targets or change their ratings following the earnings announcement. (See Netflix stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
