The streaming giant Netflix Inc NFLX beat estimates for revenue and earnings in the second quarter, but analysts have questions about long-term subscriber growth and slower than ad revenue growth seen in Thursday’s report.
Netflix reviewers: Macquarie analyst Tim Nollen maintained an Outperform rating on Netflix and raised the price target from $685 to $695.
Needham analyst Laura Martin reiterated a Buy rating and a $700 price target.
Rosenblatt analyst Barton Crockett maintained a neutral rating and raised the price target from $554 to $635.
Macquarie on Netflix: Revenue and earnings per share were part of a “good Q2,” Nollen said in a new investor report.
The analyst said there is “a lot of work to be done” for Netflix going forward.
“The Q3 outlook calls for balance in subs and ARM; Netflix must step up its efforts to build its ad business,” Nollen said.
The analyst said the fundamentals were solid in the second quarter, and there are near-term concerns.
“Q3 guidance hints at growth adaptation as Netflix pivots against UCAN’s paid sharing offering.”
Needham on Netflix: Strong subscriber growth, higher network, increased leads and growth in live events were the positives from Netflix’s second quarter report, Martin said in a new investor report.
“We are hopeful that NFLX’s increased focus on live events can reduce its churn rate. NFLX has stated that its strategy is to have monthly major live events to lower disconnects and attract new publishers,” Martin said.
Martin also highlighted the increased commitment to games from Netflix subscribers and the company’s goal of having one game per month tied to Netflix properties.
Another concern is “Netflix’s growing lack of ad revenue,” Martin said.
“We believe that marketing rev growth is slower than NFLX has planned.”
The analyst estimates that Netflix earns $5 a month for each person who subscribes to the ad-supported plan. Netflix says its target for advertising is the average user fee to be the same as the ad-free level in the future ($15.50 per month), which means hitting $8.50 per subscriber each month in advertising revenue. above $ 7. monthly payment.
Martin was also surprised by Netflix saying it won’t reach “heavyweight” for advertising until 2025.
The analyst said the interesting thing from the earnings call was that 75% of the questions were related to advertising, and only 5% related to subscriber growth.
Martin also cautioned that Netflix’s change in its direction could affect the share price.
“NFLX has been presenting its announcements on rev development and away from ARM and small growth, which we think will increase the volatility of the share price in its value.
Rosenblatt on Netflix: The streaming company showed strong subscriber growth in the second quarter, Crockett said in an investor note.
The analyst praised the second quarter, but has concerns about the third quarter, with guidance suggesting that subscriber growth could slow “significantly.”
“The question is whether this is the season and/or direction, or the beginning of a decline to a slower, more mature level,” Crockett said.
The analyst said Netflix said the increase in third-quarter subscribers was good, but less than the 8.8 million reported in the third quarter of last year.
“It’s important that significant growth comes through in 4Q24, a strong period of the year, to maintain positive sentiment on the stock.”
Crockett said Netflix will stop reporting subscriber numbers in 2025, making the fourth-quarter numbers important for comment.
The analyst said there is a risk that Netflix’s subscriber growth levels will return to the levels seen in 2022.
NFLX Price Action: Shares of Netflix fell 186% to $631.06 Friday afternoon compared to a 52-week trading range of $344.73 to $697.49. Netflix stock is up 32% year to date in 2024.
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