Netflix (NFLX) is set to report its fiscal first quarter earnings on Thursday after market close — but the streamer will have a high bar to overcome as expectations remain elevated while the stock’s valuation has surged in recent months.
“We believe the [increase] in Netflix’s stock price over the past 18 months makes for a tricky set up into Thursday’s earnings report,” Deutsche Bank wrote in a note on Monday. Shares are up more than 155% over the past year and a half, with the stock currently trading near the high end of its 52-week range.
“We believe that in order for the stock to appreciate further, consensus estimates for 2024 to 2025 will need to be revised higher, as we believe a lot is already priced in at these valuation levels,” the bank said.
Investors will continue to assess the company’s revenue initiatives, like its crackdown on password sharing and ad-supported tier, in addition to last year’s price hikes on certain subscription plans.
Those initiatives should help boost metrics like free cash flow, operating margins, and average revenue per member, or ARM.
Here’s what Wall Street expects, according to Bloomberg consensus estimates:
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Revenue: $9.27 billion (Netflix’s guidance: $9.24 billion) vs. $8.16 billion in Q1 2023
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Earnings per share (EPS): $4.52 (Netflix’s guidance: $4.49) vs. $2.88 in Q1 2023
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Net subscriber additions: 4.8 million vs. 1.7 million in Q1 2023
JPMorgan analyst Doug Anmuth, who recently boosted his price target to $650 a share and maintained his Overweight rating, added to the cautious commentary heading into the results. “The combination of elevated expectations and high valuation into the print” is an inherent risk, he said.
Still, the analyst remains “confident in Netflix’s ability to accelerate revenue growth in 2024, expand margins, and drive multi-year free cash flow ramp.” He’s projecting first quarter net subscriber additions of 6 million, ahead of consensus; however, he estimated investor expectations are likely closer to 7 million to 8 million.
Oppenheimer also expects Netflix to easily beat subscriber estimates as “paid sharing will have a longer tail than initially believed, with only 20% of the 100 million opportunity [of password sharers] captured to-date.” Key programming like “Avatar: The Last Airbender” and “Fool Me Once” should also help boost subscriber numbers.
Wall Street anticipates free cash flow of $1.9 billion in the quarter. Meanwhile ARM, which increased 1% year over year in the fourth quarter, should begin to pick up as both the ad-tier impact and price hike effects take hold.
Margin improvements are also expected after Netflix guided to full-year 2024 operating margins of 24%. The company grew margins to 21% from 18% in 2023.
“Netflix has a number of levers that it can pull to drive revenue growth from both sub additions and pricing actions,” Macquarie analyst Tim Nollen wrote in a note to clients on Monday.
He advised investors to pay close attention to ARM given its expected 2024 ramp-up but that opportunities will increase even further in 2025.
“We believe 2025 is a pivotal year for Netflix,” he wrote. “We estimate its ad business will materially contribute to ARM as more users sign up for the tier.”
Nollen maintained his Outperform rating and $685 price target on shares.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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