Netflix (NFLX) stock has been one of the better performing names in large-cap tech, rising almost 60% year to date, including a 35% boost in the past six months, besting the 13% rise in the S&P 500 index. With its shares surging 155% in just twelve months, the market appears to be “all in” on the streaming giant’s growth momentum.
The streaming pioneer is set to report second quarter fiscal 2023 earnings results after the closing bell Wednesday. Investors who are on the sidelines want to know whether there still a buying opportunity. Citing "positive data" on the company's paid sharing initiatives, UBS analyst John Hodulik boosted his estimates on Netflix, saying not only does he expect accelerating second-half growth, he now expects Netflix’s Q2 results to come in above management's guidance for revenue and profits.
In the second and third-quarters, Hodulik now expects the company to add 3.6 million and 6.5 million paid subscribers, respectively. That’s up from prior estimates of 1.4 million and 3.6 million, respectively. While forecasting Netflix’s Q3 guidance to imply faster revenue and operating income growth, the analyst boosted his 12-month price target from $390 to $525 per share. Hodulik’s optimism is consistent with management’s expressed confidence in their growth strategy.
If you recall, in Netflix’s Q4 letter to shareholders, Netflix management said, "We believe we have a clear path to reaccelerate our revenue growth: continuing to improve all aspects of Netflix, launching paid sharing and building our ads offering.” Regarding the ad-supported tier, which was launched in twelve global markets in November, it exposes Netflix to an estimated $140 billion of brand advertising spending.
All told, the company’s growth initiatives, including implementing ways to crackdown on password sharing, are paying huge dividends. Armed with over 232.5 million global subscribers and a strong value proposition among cord-cutters, Netflix has shown it is a must-have product in the streaming space. Combined with its upcoming content launches, there is still a compelling case to remain invested in Netflix stock. These assumptions will be answered when Netflix issues its guidance forecast for the next quarter and full year.
For the quarter that ended June, Wall Street expects Netflix to earn $2.84 per share on revenue of $8.28 billion. This compares to the year-ago quarter when earnings were $3.20 per share on $7.97 billion in revenue. For the full year, ending December, Netflix’s earnings are projected to rise 12.26% year over year to $11.17 per share, while full-year revenue of $33.98 billion would mark an increase of 7.5% year over year.
Its management’s ability to leverage the company's first-mover advantage in the streaming space remains one of the key differentiators for Netflix over the likes of Disney+ (DIS), Hulu, Amazon’s (AMZN) Prime Video or Warner Bros. Discovery's (WBD) Max and others. With over 232.5 million subscribers and profitable, Netflix no longer has to spend to focus on ways to acquire paying viewers, it can execute its growth strategy.
The company has done a solid job executing on the most-pressing ones, particularly the advertising-supported tier, according to Macquarie analyst Tim Nollen who on Thursday raised his price target to $410 from $350. Nollen is nonetheless cautious amid reports of consumers cutting back on streaming video services. Netflix did feel some of the pressure in Q1 with revenues rising 3.7% year over year to $8.16 billion, but narrowly missing analyst consensus estimates. Q1 adjusted EPS was $2.88 per share beat by a penny.
Meanwhile, average paid subscribers rose 4% year over year by 1.75 million, beating analyst forecasts for 1.38 million. The stock has already responded to these results. So, on Wednesday, to keep Netflix stock on its trajectory, beyond a top- and bottom-line beat, the company will need to issue strong guidance for the next quarter and full year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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