Netflix Q3 Earnings Preview — Analysts Pinpoint Key Metrics For Investors To Watch

Zinger Key Points
  • KeyBanc analysts maintain its Sector Weight rating, with a $230 price target.
  • Credit Suisse analysts maintain a Neutral rating with a $263 price target.

Netflix Inc NFLX reports earnings on Oct. 18 after the market close. Analysts at KeyBanc Capital Markets, and Credit Suisse offered some insight on what investors should be looking for ahead of the streaming service’s earnings.

What to know: Netflix is to launch an ad-supported tier, for $7 per month, beginning on Nov. 3.

The new lower-priced ad-supported tier is the primary opportunity for TAM (total addressable market) and APRU (average revenue per unit) accretion in developed markets.

Check out Netflix's rating page for more analyst ratings, and news

The analysts agree that Netflix's ad tier (which will include 4-5 minutes of advertisements for every hour of streaming) will bring in a sizable number of new users in Q4 — up to five million —but the increase in ad revenue will be offset by higher foreign exchange rates as the dollar is still relatively strong compared to other major world economies.

“Netflix’s new lower price point for a service with only 4-5 minutes per hour of advertisements should broaden its appeal and entice rejoiners,” Credit Suisse analysts said in a note to investors. “We also see a healthy 4Q content slate with The Crown S5, Manifest S4, 1899 and others being released in the quarter. Overall, the set-up into 3Q appears modestly favorable.”

Also Read: Here's How Much Netflix's Ad-Supported Plan Costs And How It Compares To Rivals

As for the third quarter, KeyBanc analysts expect net subscriber additions to come in in-line, at nearly one million, with the net additions owing to strong content.

“We believe Netflix's viewership data for Stranger Things and Dahmer suggest UCAN likely had enough gross adds to avoid three consecutive quarters of sub declines (this view is reinforced by search data),” analysts at KeyBanc wrote.

Outlook: With the new lower-cost ad tiers generating better subscriber growth without losing ARPU and pirate control initiatives boosting payment for password sharers, bulls expect revenue to reaccelerate, said Credit Suisse.

Bears acknowledge the potential for a short-term increase in subscribers from the ad tier and piracy mitigation, but they ultimately believe that Netflix won't be able to drive the profit margins worthy of its valuation because its major markets have already reached maturity and there are too many streaming services vying for a limited global TAM.

KeyBanc analysts maintain its Sector Weight rating, with a $230 price target, while Credit Suisse analysts maintain a Neutral rating with a $263 price target.

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