When Netflix released its latest earnings update in July, it added a whopping 5.9 million subscribers, bringing its global paid membership to an impressive 238.4 million. However, since that update, Netflix’s stock performance has been on a rocky road, with investors taking a more cautious stance on its earnings outlook.
The primary concerns revolve around the growth of its advertising tier, spending on licensed content, and the impact of its password-sharing crackdown. As the streaming giant prepares to release its third-quarter results, here’s what Wall Street experts are expecting and how these factors might influence the streaming giant’s future.
Managing Expectations
Netflix’s leadership issued a cautious tone regarding the nascent advertising tier, acknowledging that building an ad business from scratch is no easy feat. This note of prudence has raised concerns about Netflix’s earnings outlook, especially as the company is venturing into uncharted waters.
Increased Spending on Licensed Content
Netflix has hinted at a potential uptick in spending on licensed content. While it’s a move that aligns with its mission to offer the best in streaming, it has led to questions about how these investments might affect the bottom line.
Password-Sharing Crackdown
The crackdown on password sharing has stirred significant interest. Analysts are keen to gauge its financial impact. While some anticipate that there might still be a “long(ish) tail of sharers,” the company’s focus on higher-paying subscribers could influence Netflix’s Average Revenue Per Member (ARPM), also known as Average Revenue Per User (ARPU).
CFO’s Cautious Comments
Netflix’s CFO, Spencer Neumann, offered a more measured perspective on the company’s advertising business and margin growth during a Bank of America investor conference. He emphasized that the company is still in the early stages of its advertising venture, indicating a long road ahead. As for margin growth, Netflix has set a target of 18-20 percent for this year.
Neumann stressed that the focus is on accelerating revenue growth while gradually increasing margins, with an eye on investment in growth opportunities.
Wall Street Expectations
As the streaming giant prepares to unveil its third-quarter results, Wall Street experts have been revisiting their forecasts and stock price targets. Morgan Stanley analyst Ben Swinburne, for instance, lowered his Netflix stock price target by $20 to $430.
His rationale is rooted in Netflix’s content spend, which may increase due to licensing deals with competitors. Swinburne believes that while Netflix deserves a premium for its global scale, current consensus estimates and stock valuation might be a bit too optimistic, particularly with regard to the revenue from password sharing and advertising.
In conclusion, as Netflix’s third-quarter results loom on the horizon, the stage is set for a keen evaluation of the streaming giant’s performance and a closer look at the factors influencing its stock value. The landscape is evolving, and Netflix’s cautious approach to advertising and the impact of its strategic decisions will likely shape the company’s financial outlook and Wall Street’s expectations in the months to come.
