Streaming giant Netflix, Inc. (NASDAQ:NFLX) is scheduled to report its first-quarter results on Tuesday. Analysts, on average, expect earnings per share of $2.85, down from $3.53 a year ago, and 3.6% year-over-year revenue growth to $8.17 billion.
The Netflix Analyst: KeyBanc Capital Markets analyst Justin Patterson has a Sector Weight rating on Netflix.
The Netflix Thesis: Netflix's first-quarter results and the second-quarter guidance take a backseat to what the management says about paid sharing, analyst Patterson said in a note.
KeyBanc's search query analysis suggests that churn from paid sharing reached a peak in the first two to three weeks before returning to more normal levels, the analyst said.
He noted that following the announcement of paid sharing, "Cancel Netflix" Google searches peaked in Spain and Canada over a two-week period before declining by 84% and 83%, respectively.
Among the key factors KeyBanc would watch on the earnings date are:
- Whether Netflix mentions incremental revenue contribution from paid sharing
- Whether expectations for second-quarter paid net adds exceeding first-quarter net adds has changed
The analyst said he sees Netflix shares trade higher independent of results and guidance if it provides a timeline toward subscriber or revenue incrementality. If new details are not provided and/or the second-quarter net add inflection is walked back, the shares could experience some near-term headwinds, he added.
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On the flip side, the analyst noted that gross add headwinds persist, as seen by an 8% drop in global Google search queries and a 6% Apptopia downloads. "In our view, Netflix is moving further along the maturation curve with one-time benefits from paid sharing ahead," he added.
Also, average revenue per user growth was moderating, and viewership trends were weakening, the analyst said.
As such, Patterson raised his 2023 revenue estimate by 1% and EPS estimate by 3%, citing increased confidence in paid sharing's churn impact and slightly better ad-tier performance. The analyst also modeled more modest marketing and content budget growth.
Netflix Price Action: In premarket trading on Friday, Netflix shares edged down 0.14% to $345.72, according to Benzinga Pro data.
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