Netflix
is going through a period of change, and that could cause its coming earnings to leave investors wanting more. One Citi analyst says now is not the time to panic.
Netflix
(ticker: NFLX) is scheduled to report first-quarter earnings on April 18. Investors are going to look for clarity on the company’s next steps regarding rules on password sharing, global price cuts, and the success of the new, lower-priced subscriber tier that features adverts.
In November, Netflix launched its ad-tier to users in the U.S. This gives subscribers the option to stream their favorite shows, such as Bridgerton, with the inclusion of advertisements for a lower price. This was meant to help the streaming giant attract new subscribers, or hold on to existing ones who might be struggling as inflation continues to run red-hot.
In February, Netflix started to implement new rules in different countries to regulate password sharing in an attempt to bring in more revenue. The company has said that more than 100 million households were sharing accounts, affecting its ability to invest in programming. Also in February, reports came out that the company had lowered monthly subscription prices in more than 100 territories.
Citi analyst Jason Bazinet wrote in a research note that earnings might look confusing this time around considering all the changes the company has made recently, but he encouraged investors not to “overact to 1Q23 KPIs [key performance indicators] or financials and keep their eye on the prize.”
Bazinet maintained his Buy rating and $400 price target on the stock.
“Our bullish stance on Netflix is based in large part by the material benefits we expect to see from the firm’s introduction of an ad tier. We also see an opportunity for the firm to generate incremental cash flow by raising prices to capture additional consumer surplus,” Bazinet said.
Even though Netflix reportedly lowered prices in smaller territories this year, management noted on its last earnings call it was looking to raise prices in some countries.
Bazinet is not alone in his bullishness coming into earnings. Jefferies analyst Andrew Uerkwitz wrote in a note last week that he expects “a lot of noise in 2Q23.”
He said Jefferies is “being very conservative in our own modeling of churn in response to password crackdown.”
However, he noted: “We believe most of that churn will be somewhat impulsive, as it has minimal impact on the existing subscriber, and those members will return to the service over the course of 2023. As such, we recommend buying any dip associated with a conservative 2Q23 guide.” Uerkwitz rates the stock Buy with a $415 price target.
Shares of Netflix were 1% higher Wednesday at $341.49. The stock has jumped 15% this year.
Write to Angela Palumbo at [email protected]
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