Netflix’s mixed quarterly results had something for the bulls and the bears, as analysts weighed their outlook on the streaming service against a delay in the password sharing crackdown and lackluster guidance. The company originally planned a move on sharing in the first quarter, but on Tuesday the firm said it pushed it back to the second quarter, saying “some of the expected membership growth and revenue benefit” will fall later as well. Second-quarter guidance also came in lighter than the Refinitiv consensus. NFLX 1D mountain Netflix shares 1-day The news was initially poorly received on Wall Street, with the streaming stock dropping more than 10% following the results. However, the stock has since rebounded somewhat. It was last trading about 1% lower in the premarket. For UBS analyst John C. Hodulik, the mixed earnings results did not change what he expects is an improving competitive backdrop for Netflix. Hodulik upgraded Netflix to buy from neutral, saying he expects growth will inflect with double-digit profit growth and rising free cash flow. What’s more, he said restricting password sharing could become “meaningfully accretive” for Netflix as soon as the third quarter. “We see Netflix as the main beneficiary of easing competition in DTC as peers focus on profits. We believe this will drive upside to subs/pricing power in the coming yrs while also keeping a lid on content costs, one of the biggest swing factors for profits/FCF (spend now expected to decline in ’23),” Hodulik wrote to clients on Wednesday. “Along with stronger conviction/visibility into new monetization initiatives … performance is inflecting and we expect [revenue] growth to re-accelerate to 10%+ while driving 200-300 bps of annual margin expansion amid relatively stable content spend,” Hodulik added. Hodulik’s 12-month price target of $390, raised from $350, implies shares can rise 16% from Tuesday’s close. Netflix turned to an ad-supported plan, and a password sharing crackdown, after reporting its first subscriber loss last year. The stock cratered 51% in 2022 during a period of rising interest rates and amid rising competition among streaming services. This year, however, it’s up by 13%. In its earnings results, Netflix beat on per-share earnings expectations in its latest quarter, posting $2.88 per share compared to the $2.86 forecasted by analysts polled by Refinitiv. On the other hand, the firm reported revenue of $8.16 billion, lower than the $8.18 billion expected. Views on sharing Meanwhile, Bank of America’s Jessica Reif Ehrlich maintained a buy rating on Netflix, and a $410 price target, saying “password sharing should be a solid subscriber, revenue and [operating income] driver moving forward” despite lighter guidance. “Netflix will rollout password sharing in major markets in 2Q. While this is a contributor to the lighter 2Q guidance vs. prior est. (largely due to initial expected spike in churn impacting net adds), this is a key validator of our bullish thesis driving a 2H acceleration in revenue and net adds and significantly increasing the longer-term monetization potential for the company,” she wrote. On the other hand, Goldman Sachs’ Eric Sheridan, who has a sell rating on Netflix, said he expects a “muted to negative reaction” to Netflix’s results. He cited mixed subscriber growth, light guidance, and uncertainty around the delayed rollout in the password sharing crackdown. “We expect investor debates into/out of the earnings call to focus on forward growth trajectory, execution on the ad tier and broader password sharing initiatives, competitive intensity and forward margin/cash generation trajectory,” Sheridan wrote. Sheridan’s $230 price target implies more than 30% downside from Tuesday’s close. Elsewhere, Citi analyst Jason B Bazinet maintained a buy rating on the stock, though he said he “would not be surprised to see shares to trade a tad lower [Wednesday] given the weaker-than-anticipated 2Q22 outlook.” —CNBC’s Michael Bloom and Lillian Rizzo contributed to this report.
