Streaming giant Netflix Inc NFLX reported first-quarter financial results after market close Tuesday. Analysts break down the results and what they see for the company moving forward.
The Netflix Analysts: Truist analyst Matthew Thornton has a Hold rating and price target of $339.
Oppenheimer analyst Jason Helfstein has an Outperform rating and a price target of $415.
Raymond James analyst Andrew Marok has a Market Perform rating and no price target.
Rosenblatt analyst Barton Crockett has a Neutral rating and raises the price target from $345 to $357.
Needham analyst Laura Martin has a Hold rating and no price target.
KeyBanc analyst Justin Patterson has a Sector Weight rating and no price target.
Related Link: Trading Strategies For Netflix Stock After Q1 Earnings
The Analyst Takeaways: Thornton called the first quarter results mixed, with several positives and negatives from the company. Among the positives were the average revenue per user for the ad-supported plan coming in higher than expected, and a private marketplace being built for ad inventory.
Negatives for the analyst were guidance below consensus, a lack of ad-supported tiers and the password-sharing crackdown being delayed.
“The company is upgrading its Basic with Ads tier as opposed to launching Standard and Premium equivalent ad tiers,” Thornton said. “Not sure the rationale, though other tiers could/should still come in the future, in our view.”
Helfstein sees a strong future for Netflix given its password-sharing crackdown and the early results in Canada, with comments that revenue was growing faster in the country than in the U.S. The analyst also sees the comments on the ad-supported plan as a positive development.
“While ad revenue won’t be material until ’24, US ad-tier monetization is now greater than standard sub plan, with global ad-tier monetization greater than basic plan,” Helfstein said.
The analyst sees churn increasing in the short term due to the shared password crackdown, while noting that the second half of the fiscal year could see “revenue acceleration in subscribers and monetization.”
Marok said that Netflix is “pressing the pause button momentarily” to “kicks the can down the road.”
The analyst said that Netflix has seen its growth initiatives go according to plan, but it could take longer to get there.
“Netflix still sees the same opportunities to re-accelerate revenue growth back into the double digits, though may take slightly longer to get there,” Marok said.
The analyst said the quarter did little to settle a debate about the opportunities of password-sharing crackdowns and ad-supported tier launches.
In a note to investors, Crockett calls the results from Netflix’s first quarter “the good, the bad and the evolving” using a movie reference.
One of the negatives in the first quarter for Crockett was the subscriber growth of 1.75 million paid accounts, which was the weakest first quarter for the company since 2010, outside of 2022.
“Net adds of 100k in the US/Canada, on a base of 74.3 million, were de minimus,” Crockett said. “Netflix is no longer guiding subs, but subs drive the business and so they matter.”
The analyst said Netflix is dominant in the streaming market, but showed less domination than in recent periods.
“Paid sharing and advertising should help rejuvenate growth, but if the base is slowing, the lift from these new efforts may not be as much as bulls hope for.”
The positive in the quarter for Crockett was free cash flow, which was up 164% year-over-year with less money spent on content.
The analyst said the evolving part of Netflix is the paid streaming and advertising, which still have questions to how much growth they will provide for Netflix and shareholders.
“We see a potential benefit to Netflix, though, that if it really blows out advertising, it could hasten the demise of pay TV.”
Martin said shareholder value is being lowered for Netflix because it is turning into a slow follower when it used to lead in the streaming market.
The analyst said that Netflix should release some movies in theaters as some customers prefer this method and the venues help advertise the film, lowering Netflix’s marketing spend. Another idea from Martin that Netflix hasn’t done is similar to what many streaming rivals do.
“NFLX should NOT drop all episodes simultaneously because a) consumers can watch all & churn immediately; b) buzz dies quickly; and c) lower cross-selling of other NFLX shows because viewers don’t return week after week,” Martin said.
Martin said that other streaming rivals launched ad-supported tiers first.
“NFLX was years late with its advertising tier, which cost shareholders lost revs, and aided sub growth of NFLX’s competitors, we believe.”
Paid net subscriber growth of 1.8 million was below an estimate of 4.9 million from Patterson, which was above what many other analysts were forecasting.
“U.S. ad-supported tier is already monetizing above the Standard plan – this implies average revenue per member of greater than $15.50 a month for U.S. ad users, which is earlier than we expected,” Patterson said.
NFLX Price Action: Netflix shares are down 3.4% to $322.20 on Wednesday, versus a 52-week trading range of $162.81 to $379.43.
Read Next: Netflix Co-CEOs Get Candid About Password Sharing Crackdown
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