Netflix earnings preview: Revenue growth expectations get ‘dialed back’ by some analysts

Changes are afoot amid the streaming-video giant’s ongoing rebound following a pandemic-propelled push as well as pressure from rivals Walt Disney Co.
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In July, Netflix reported an increase in subscribers of a surprising 5.9 million — blowing past analysts’ average estimate of 1.82 million — but third-quarter revenue guidance was light, with executives forecasting $8.52 billion, while analysts on average were expecting $8.66 billion.

Read more: Netflix earnings bring big subscriber windfall, but stock gets dinged on light revenue forecast

“Sentiment in Netflix is quite different from earlier in the year on the back of weak [average revenue per user] performance thus far in the year and continued expectation of weak pricing growth through the rest of this year despite some tailwind from the rollout of paid sharing,” Barclays analyst Kannan Venkateshwar cautioned in a note Oct. 10. “This in turn has resulted in revenue growth expectations being dialed back.”

Venkateshwar added: “In addition, early advertising growth expectations are now being walked back, a risk we had flagged last year at the time of the ad tier roll out.”

A “more challenging macro” environment prompted Jefferies analysts to trim their price target on Netflix shares to $445 from $520 in an Oct. 11 note.

Of course, Netflix’s concerns go beyond typical consumer churn, point out analysts who see linear TV winning back viewers.

“We believe that the linear TV ecosystem will begin to win back subscribers over the next 2-3 years, after the cable companies aggregate the major OTT services into their bundle,” Needham’s Laura Martin said in an Oct. 9 note that maintains a hold on Netflix shares.

What to expect

Earnings: Analysts tracked by FactSet project Netflix to report $3.49 a share in earnings, compared with $3.10 a share a year before. On Estimize, which crowdsources projections from hedge funds, academics and others, the average projection also calls for $3.49 a share in earnings.

Revenue: The FactSet consensus calls for $8.54 billion in revenue, up from $7.93 billion the previous year. Those contributing to Estimize also expect $8.54 billion in revenue.

Stock movement: Shares of Netflix have climbed 21% this year, most of that in the last six months. The S&P 500 
SPX
is up 14% in 2023.

Of the 47 analysts tracked by FactSet who cover Netflix shares, 23 have buy ratings, 20 have hold ratings and two recommend to sell, with an average price target of $459.47.

What to watch for

Everything is on the table in an ever-shifting streaming market in which Amazon plans to raise streaming prices and Disney is mulling asset sales.

With consumers’ content-viewing habits still evolving, Netflix’s various moves are essential and have put it in a prime position to grow, say Wedbush analysts, who are bullish with an outperform rating and price target of $525.

“We think Netflix is well-positioned in this murky environment as streamers are shifting strategy, and should be valued as an immensely profitable, slow-growth company,” the analysts said in an Oct. 6 note. “Even while ads are not yet directly accretive (we think they will be accretive by year-end), the ad-tier should continue to reduce churn and draw new subscribers to the service.”

Cowen analyst John Blackledge takes a more tepid view. In an Oct. 11 note that maintained an outperform rating but trimmed Netflix’s price target to $500 from $515, Blackledge said he expects paid net additions of 6.5 million subscribers versus a consensus of 6 million, but also sees gradual margin growth in the fourth quarter and beyond.