Netflix subscriber growth bodes well, but some analysts say it’s too early to buy
Netflix’s strong fourth-quarter subscriber growth and solid content slate could signal the dawn of better times for the streaming stock, but it may be too early to buy shares, according to some Wall Street analysts. The company shared a big earnings loss on Thursday, but it beat subscribers’ expectations, helping the stock surge more than 5% before the bell. Netflix reported 7.66 million new subscribers, compared to 4.57 million subscribers StreetAccount estimated it was expecting. The streaming giant also announced the departure of Reed Hastings as CEO. Analysts see the company’s new advertising layer and its content as key to Netflix’s financial performance in the coming months. However, there are concerns about the company’s churn. Needham’s Laura Martin said in a note to clients on Friday that it’s a little early for investors to buy the stock as estimates and valuations for shares currently appear “too high”. “From a valuation perspective, we worry that NFLX’s multiple is too high given that its growth is largely driven by price increases,” she said. “That said, sub-ads have slowed every quarter for the past 6 quarters, reaching 4% YoY growth in 4Q22.” According to Martin, the company may also need to raise prices by 6% to 8% per year to stay in to achieve double-digit sales growth in the future. NFLX 1D Mountain Netflix Jumped After Earnings “In our view, a 33x P/E is too high a multiple for a company that depends primarily on price increases for growth,” she wrote. “We prefer business models where both users and prices grow.” Wells Fargo’s Steven Cahall says double-digit revenue growth is within reach for the company, although it’s unlikely at least until the second half of the year. He expects shares to take a hiatus through the summer as paid sharing begins to impact net additions, and anticipates lower earnings and margins. “We expect 1H23 to be a pause as paid sharing impacts churn,” he wrote. “But once we’re done with that, we like the setup for estimate upgrades in ’24+.” Since Netflix released its second-quarter results, its shares are up more than 46%. How the company executes on its ad-supported tier, password-sharing initiative and content listing will determine whether the shares continue to outperform, Goldman Sachs’ Eric Sheridan wrote. Still, the analyst reiterated his sell recommendation, saying that the risk-reward ratio appears skewed down at these levels as momentum is already priced into stocks. JPMorgan’s Doug Anmuth, on the other hand, reiterated his overweight stance on the stock, noting that paid login-sharing should drive revenue growth and margin growth in 2023 despite the patchiness during the pandemic.” Meanwhile, Wolfe Research’s Peter Supino raised his expected net growth forecast to $11 million for the company to 20 million in 2023 and said in a note to clients that the comment and results underpinned its “confidence in subscriber prospects and the opportunity for operational leverage.” On the leadership front, Supino and analysts view the CEO change as positive for the company.”While Reed Hastings will certainly be missed when he steps down as co-CEO and moves to executive chairman, we don’t expect NFLX to miss a beat as Greg Peters rises from COO to co-CEO,” said Supino.- CNBC’s Michael Bloom contributed to the reporting ung at.
https://www.cnbc.com/2023/01/20/netflixs-subscriber-growth-signals-better-times-ahead-but-some-analysts-say-its-still-too-early-to-buy.html Netflix subscriber growth bodes well, but some analysts say it’s too early to buy
