Netflix stock surgebut Wall Street still seems split on future

Netflix (NFLX) shares closed 13% higher on Wednesday after the company’s huge third-quarter earnings report. The platform delivered a hit both bottom line and bottom line, in addition to adding 2.41 million net subscribers — a staggering estimate of 1 million.

“Clearly this company is back on track,” Geetha Ranganathan, senior media analyst at Bloomberg Intelligence, told Yahoo Finance Live, as analysts begin to split into optimistic and not-so-optimistic buckets.

Following the strong results, Guggenheim’s Michael Morris maintained a buy rating and raised his price target by $40 to $305, while Wedbush Securities’ Michael Pachter raised his price target to $325 (from $280) and ” higher free cash flow expectations.”

Evercore ISI’s Mark Mahaney increased his price target by $40 to $340 and reiterated his outperform rating. In a note to clients, the analyst wrote, “Netflix fundamentals have stabilized, and now comes the biggest catalyst for consumer internet – the launch of Netflix’s ad-supported offering in November.”

Will ad-supported be the answer? The split in Wall Street

Despite concerns that current subscribers will migrate to the ad-supported version, Citi CEO Jason Bazinet told Yahoo Finance Live that he sees ad adoption as a lucrative revenue driver.

“It’s not a spin-down risk, it’s a spin-up opportunity,” the analyst claimed, suggesting the company could generate $10 or more in advertising revenue per ad tier subscriber in the US

Ranganathan agreed that ad-supported will be a powerful catalyst going forward, stating that the price of the upcoming tier is “competitive” in the US at $6.99 per month

Dave Heger, senior equity analyst at Edward Jones, added that “the ad-supported service should help drive subscriber growth in international markets” — a particularly salient point given the strengthening US dollar.

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“The lower price point will be attractive in certain overseas markets — there are more ways to pay at that lower price point,” he said, suspecting the ad revenue will help offset lower price points and, in turn, offset FX as well . pressures.

Netflix lowered its forward guidance, citing FX challenges in particular as the US dollar continues to gain momentum against most major currencies.

“Based on our YTD actuals and Q4 guidance, we estimate that this value increase since January 1, 2022 will increase our full year 2022 sales and operating income by approximately $1 billion and $0.8 billion, respectively. Dollar will be negatively affected,” the company said in its earnings release.

But not everyone on Wall Street thinks so.

Bank of America reiterated its underperform rating and price target of $196, writing in a note to clients that Netflix’s “ad tier as a growth driver is difficult to understand, especially with lower cost per thousand impressions (CPMs) outside of the English speaking markets”.

“We are still unable to achieve a convincing international breakeven and are unsure of the value proposition to consumers as high CPM countries are almost fully penetrated,” the release continued, adding that there are headwinds in the Exchange rates, cyclical content and long-term challenges still remain.

Similarly, CFRA analyst Kenneth Leon, despite raising his price target on the stock by $10 to $225 per share, maintained his Sell rating, writing that the shares are currently “overvalued.”

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“Netflix isn’t a growth company… It’s a slow-growing media company with single-digit revenue growth and intense competition,” the analyst wrote in a note to clients, adding that any material impact of the platform’s upcoming promotional stage would not be supported until the second half of the year realized in 2023.

Macquarie analyst Tim Nollen, who remains neutral on the stock, said he expects fourth-quarter earnings and revenue to be dragged down by foreign exchange and content costs.

He added that while he’s optimistic about growth from the ad tier and efforts to reduce password sharing, those revenue streams will take time to turn into meaningful upsides. As a result, Nollen estimates only modest EBITDA growth for 2023.

That

The ‘Stranger Things’ cast members pose together at the season four premiere at Netflix Studios Brooklyn on Saturday, May 14, 2022 in New York. (Photo by Evan Agostini/Invision/AP)

content wins

Tuesday’s gains marked the first time this year that the company has added subscribers, mostly from outside the United States

In the first and second quarters, Netflix lost 200,000 and 970,000 subscribers, respectively. The company said it will no longer provide guidance on paid memberships due to the introduction of new revenue streams. For now, however, it estimates an increase of 4.5 million subscribers in the next quarter (above previous projections of 3.9 million).

Netflix attributed its success in the quarter to several TV and movie hits, including Monster: The Jeffrey Dahmer Story, Stranger Things S4, Extraordinary Attorney Woo, The Gray Man, and Purple Hearts.

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Netflix co-CEO Ted Sarandos said on the conference call that the company, which has pledged to spend $17 billion on content in 2022, is working to “become better and better” at making “more impact per Achieve $1 billion in spend than anyone else.”

“So that’s what we’re focusing on — we’re spending at about the right level,” the executive claimed.

Underscoring its streaming capabilities compared to its peers, Netflix wrote in its earnings release, “Our competitors are investing heavily to grow subscribers and engagement, but building a large, successful streaming business is difficult – we estimate they’re all losing money.” , as they operate together in 2022 Losses well over $10 billion versus Netflix’s annual operating profit of $5 billion to $6 billion.

Bloomberg’s Ranganathan noted that Netflix should come out on top as competitors cut spending and focus more on profitability.

“I think that really gives Netflix an edge as they’re trying to keep getting more bang for their buck,” Ranganathan said, adding that increased engagement will also be particularly useful for advertisers.

Alexandra is Senior Media and Entertainment Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]

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