What Wall Street’s experts say about Netflix ahead of earnings

Netflix (NFLX) is scheduled to report its second quarter 2024 financial results and business outlook on Thursday, July 18. A video interview with Netflix executives, including co-CEOs Ted Sarandos and Greg Peters, will follow at 4:45 pm ET. What to watch:

SUBSCRIBERS: Netflix’s membership trends are a closely-watched measure of the company’s growth trajectory.

In the first quarter, the company reported the net addition of 9.33M global streaming paid members, noting that the paid net additions were higher than the company had forecast.

Netflix said in its quarterly letter to investors: “For Q2’24, we forecast revenue growth of 16%. This equates to 21% growth on a F/X neutral basis due primarily to price changes in Argentina and the devaluation of the local currency relative to the US dollar. We expect paid net additions to be lower in Q2’24 vs. Q1’24 due to typical seasonality.”

Netflix is projected to add 4.87M net subscribers in the second quarter, according to the average of analyst estimates compiled by Bloomberg. Consensus forecasts reported by Bloomberg recently called for $9.53B in revenue and $4.76 in adjusted earnings per share for the June-end quarter, versus the company’s forecast for Q2 revenue of $9.49B and EPS of $4.68.

WHICH FIRM WAS RIGHT WITH POST-Q1 CALL?: On the day after Netflix’s last earnings report, Canaccord downgraded Netflix to Hold from Buy with a price target of $585, down from $720. While Netflix reported Q1 results that were ahead of expectations, with revenue benefiting from another quarter of strong member additions as the company continues to scale its paid sharing offering, and profitability came in ahead of guidance, the firm said it saw limited growth catalysts for the next few quarters despite the “mostly solid results and outlook.” With the stock up 90% over the last 12 months at that time, the firm said it thought investors “may be well served to look elsewhere for upside.” Netflix’s paid sharing likely meaningfully pulled forward member growth and reduced subscriber disclosures add to the uncertainty, contended Canaccord in its post-Q1 downgrade.

Meanwhile, Needham upgraded the stock to Buy from Hold with a $700 price target following the company’s Q1 earnings beat. Gen-AI will benefit “tech-first” companies the most, and Netflix qualifies, the analyst told investors at that time. The company also offers “global scale” that maximizes the value of its data, and Needham believes that its price increases and ad revenue should accelerate revenue growth and expand margins, the firm added.

In a recent preview note, Morgan Stanley raised the firm’s price target on Netflix to $780 from $700 and kept an Overweight rating on the shares. The firm, which expects continued strong results from Netflix heading into the second half of 2024, raised estimates and sees a path to its $950 bull case now by year-end 2025, the analyst told investors. When looking toward 2025 growth, the firm expects advertising will increase in import to deliver on top-line and margin expansion expectations, the analyst noted.

On July 16, Jefferies raised the firm’s price target on Netflix to $780 from $655 and kept a Buy rating on the shares. The firm believes Netflix is well positioned for another subscriber beat in Q2, given the robust content slate and success of password sharing initiatives driving near-term upside. Looking ahead, the firm sees the second half content slate, including NFL Games and Squid Games, supporting growth and raised its FY24 subscriber estimate by 1.3M members.

CITI, BENCHMARK REMAIN CAUTIOUS: On the day after Netflix’s last earnings report, Citi noted that Netflix reported Q1 revenue 1% above the Street forecast and operating income that was 9% above the consensus. However, the company provided a 2024 revenue growth outlook range that, at the midpoint basis, fell below the Street view, the analyst told investors. Management also noted that they will no longer disclose net adds or average revenue per user beginning in Q1, Citi pointed out. The firm, which said it suspected that reduced disclosures may disappoint the Street, kept a Neutral rating on the shares.

More recently, on July 11, Citi said it is cautious on Netflix going into the Q2 report given the recent rally in the shares. The firm keeps a Neutral rating on the name with a $660 price target. Citi expects Netflix to report net additions modestly ahead of sell-side estimates, but modestly below investor expectations. Investor focus will likely remain on the company’s advertising tier, sports content strategy and capital allocation, the analyst tells investors. With the stock up 45% year-to-date, Citi is cautious heading into the earnings report.

In its own earnings preview earlier this week, Benchmark raised the firm’s price target on Netflix to $545 from $450 and kept a Sell rating on the shares. Netflix management “undeniably continues to execute well” on paid sharing, its advertising effort and injecting significant new content – including NFL Christmas Day games and WWE Raw next year – but the firm still does not feel the current valuation can be justified, even valuing Netflix as a Nasdaq 100 high growth technology name and “disregarding its hybrid media stock character,” the analyst told investors.

SENTIMENT: Check out recent Media Buzz Sentiment on Netflix as measured by TipRanks.