Analysts Expectations for Netflix Ahead of Q3 Earnings

Netflix Stock

Netflix (NASDAQ:NFLX) has seen a relatively modest year compared to its tech peers, despite an overall strong performance in the tech sector in 2023. Year-to-date, Netflix’s stock has gained 21.9%, while the Nasdaq Composite (NASDAQ) has risen nearly 30%. In contrast, other FAANG stocks have posted impressive gains this year, with Meta Platforms (NASDAQ:META) up 165%, Amazon (NASDAQ:AMZN) up 56%, Apple (NASDAQ:AAPL) up 38%, and Alphabet (NASDAQ:GOOGL) up 57%.

Valued at $157.61 billion, Netflix remains the global leader in the streaming market. However, factors such as inflation and increased competition in the streaming industry have slowed its growth in recent quarters. Despite these challenges, most analysts believe that there is further upside potential for the stock, and the company seems optimistic about the rest of the year. Even with heightened competition, Netflix maintains a strong position in the streaming business, with its revenue having doubled from $16 billion to $32 billion over the past five years.

Anticipated Growth

Netflix expects growth to accelerate through the year-end, backed by significant changes in its C-suite leadership and the introduction of new revenue streams, such as paid sharing.

Leadership Changes

The appointment of co-CEOs, Ted Sarandos and Greg Peters, and other leadership changes earlier this year, often a source of stock market uncertainty, have seemingly not deterred the company’s growth.

Paid Sharing 

While Netflix faced some backlash for introducing paid sharing, it still managed to add 5.9 million global subscribers in Q2, reflecting the effectiveness of this new revenue strategy.

Revenue Growth

Management anticipates revenue growth in the second half of the year, attributed to the successful rollout of its paid-sharing launch in all remaining countries and continued steady growth in its ad-supported plan.

Free Cash Flow 

Netflix aims to generate $5 billion in free cash flow this year, even with increased content spending, thanks to the resolution of the Hollywood writers’ strike.

Analysts’ Expectations for Q3: Analysts expect Netflix’s Q3 revenue to reach $8.54 billion, an 8% year-over-year increase, in line with the company’s forecast. Earnings per share (EPS) are projected to grow by 12% year-over-year to $3.47. For the full year 2023, revenue is estimated to increase by 7% to $34 billion, with FY EPS expected to reach $11.94, up 20% from 2022.

Analyst Sentiment

Despite decelerating growth, some analysts have become less optimistic about Netflix. Several firms, including Morgan Stanley, TD Cowen, and Wells Fargo, have reduced their price targets, while Wolfe Research downgraded Netflix from Outperform to Peer Perform. Wolfe Research noted concerns about the company’s average revenue per user expectations for 2024 and potential shortfalls in gross additions due to paid sharing.

Price Targets

Of the 37 analysts covering Netflix, 20 recommend a “strong buy,” 15 suggest a “hold,” and two propose a “strong sell.” The average price target stands at $444.39, indicating a potential upside of about 23% in the next 12 months.

Future Outlook

Netflix’s plan to raise prices for ad-free streaming and its growth strategies for 2024, including potential price hikes and improved content, will be key areas to watch. The company aims to meet its 2024 EPS target of $15 per share, with consensus estimates projecting revenue of $38 billion in 2024, representing 13% growth and EPS of $15.1 per share.

More insights into Netflix’s performance and growth strategies for 2024 will be revealed when it releases its earnings on Wednesday, October 18.

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