Netflix ( NFLX ) is set to report its fiscal second-quarter earnings Thursday after the market close — but the streamer will again have a tall hurdle to clear as the stock flirts with record highs.
“For NFLX stock, the price is too high, but we remain bullish given the still-large upside potential,” Morgan Stanley analyst Benjamin Swinburne wrote in a note ahead of the report.
Investors have praised the company’s efforts in sports and live events. Meanwhile, its advertising pitch continues to gain traction. Shares are up as a result, with the stock up about 35% since the start of the year.
As of Thursday’s close, Netflix was trading at around $656 per share. The stock closed at a record high of $691.69 on November 17, 2021.
But the recent rally in stocks has led to some concern on Wall Street.
“We are bullish on the firm’s exit in Q2 2024,” wrote Citi analyst Jason Bazinet. “We maintain our Neutral rating and $660 price target.”
Here’s what Wall Street expects from the report, according to Bloomberg consensus estimates:
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Income: $9.53 billion (Netflix guidance: $9.49 billion) vs. $8.19 billion in Q2 2023
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Earnings per share (EPS): $4.74 (Netflix guidance: $4.68) vs. $3.29 in 2Q2023
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Net Subscriber Additions: 4.7 million compared to 5.9 million in Q2 2023
In May, Netflix announced that it acquired the streaming rights to two NFL games to be broadcast on Christmas Day as part of a three-season deal. The company also told advertisers at its May Upfront presentation that its ad reach has reached 40 million global monthly active users — a significant increase from the 15 million users the company disclosed in November and an increase of 35 million users compared to one year ago. period.
The increase comes as the broadcaster has increased the prices of its ad-free subscriptions in a bid to lure more users to its ad-supported offering. Netflix’s crackdown on password-sharing has also boosted top-line growth and boosted the platform’s overall subscriber base, with over 9 million more users added in the first quarter.
But it hasn’t been a completely smooth trajectory in direction. In April, Netflix said it would stop reporting subscriber numbers early next year, raising concerns about its long-term subscriber growth and sending shares tumbling.
Netflix also has “bigger competitors to consider especially as its business matures over the next few years,” Swinburne warned. “Obvious examples are Alphabet’s YouTube and Amazon’s Prime Video. Perhaps less obvious are other sources of consumer time such as social media, which are increasingly populated by short videos.”
“Finally, there is the long-term risk that as own margins build through large returns, [a new army] or many can be collected,” he said. “The potential for AI tools to dramatically reduce barriers to entry in premium, professional video comes to mind in this regard.”
And although the level of advertising has seen early success, analysts have warned that the initiative still has a long way to go. Bank of America analyst Jessica Reif Ehrlich said her team sees the ad “as a long-term story and [does] do not expect a material revenue contribution until 2025.”
She cited the glut of new inventory with the launch of several competitors’ ad-supported services, along with “the backdrop of a mixed advertising environment.” However, the analyst reiterated her Buy rating and raised her price target to $740 per share, from $700 previously.
“We raised our target multiple to reflect continued momentum in the underlying business,” she said. “Backed by its world-class brand, leading global subscriber base, position as an innovator and increased visibility into growth drivers, we believe Netflix should continue to outperform.”
Alexandra Canal is a senior reporter at Yahoo Finance. Follow him to X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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