Netflix Stock (NASDAQ:NFLX)
All analyst’s eyes seem to be on the impact of a larger crackdown on sharing the service’s passwords on subscriber growth in the second quarter (and beyond) ahead of next week’s Netflix (NASDAQ:NFLX) results.
Although advertising initiatives and the “nettlesome” password sharing crackdown are likely to boost average revenue per member, they “may largely work to offset some [subscription video on demand] competitive pressure rather than reignite growth under current difficult conditions,” analyst Matthew Harrigan said, explaining why bearish Benchmark is maintaining a Sell rating and remaining cautious.
He pointed out considerable skepticism about how the account-sharing effort may influence growth in the United States in the second quarter (specifically, whether the company would meet management’s goals for sequential growth). His same $250 price target on Netflix stock implies a 26% drop for now.
J.P. Morgan concurs that the business may need to scale down its plans for sub-expansion in light of the upcoming larger deployment of paid sharing in Q2. “expect similar friction across a larger set of markets, likely to include the U.S., Brazil, those in Western Europe, and many others,” analyst Doug Anmuth said, referring to the backlash that has arisen in newly announced areas like Canada.
Due to the timing of the launch, he has revised his projections, increasing his estimate for first-quarter net subscriber additions to 3.25 million from 1.5 million and decreasing his estimate for second-quarter net additions to 1 million from 3.25 million. His rating remains Overweight, and his price target remains at $390.
Citi is equally optimistic, although warning of impending volatility: “We would encourage investors not to overreact” to first-quarter measures or financials and instead “keep their eye on the prize,” as Citi analyst Jason Bazinet put it. Ad tier uncertainty, a sluggish crackdown on password-sharing, and doubts about “sharply lower” rates in lower-penetration areas will all plague the first quarter.
Even so, “We continue to believe two things: (1) the crackdown on password sharing will not result in incremental revenue (as lower [average revenues per user] are offset by better net adds), and (2) the ad tier will add 65M subs with ARPUs above [standard subscription] levels,” he stated. The $400 price estimate set by Citi indicates a potential gain of 19%.
Morgan Stanley has maintained its neutral stance in its latest report, maintaining its Equal Weight rating and stating that “we see a balanced view of the upside and downside potential in shares at current prices.”
Netflix is “the streaming winner but priced as such,” according to analyst Benjamin Swinburne. “Paid sharing and ad-tier opportunities are significant but appear largely captured in expectations and valuation,” he said.
He pointed out that despite the general rate hikes in the first quarter of 2022, the comparatively delayed rollout of the streamer’s paid sharing plan (it’s only online in four countries) would generate a useful year-over-year comparison in churn. That bodes well for his optimistic prediction of 1.5M net subscriber increases for the first quarter.
While the firm is already facing harsh content comparisons, with the conclusion of Ozark and the start of Stranger Things season 4 (in Q2 2022), wider deployment of paid sharing might hurt Q2. He anticipates a price of $350.
On Wednesday, Warner Bros. Discovery will provide investors with additional information about its ambitions for a merged streaming service, which would shed light on a major competitive thread in the industry. Moreover, Netflix has stated that it will add an animated series based on the Stranger Things franchise.
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Author Shariq Khan 
