Netflix (NASDAQ:NFLX) will report its first-quarter results on Thursday, and investors will focus on its ad-supported tier's performance, along with subscriber growth.
Since the global rollout of its crackdown on password sharing in May last year, Netflix has seen a boost in subscriber growth, with the streaming giant adding almost 22 million subscribers to its platform.
Analysts are optimistic that the California-based company would beat Street expectations for revenue and EPS, benefiting from its ad-supported tier and curated content slate consisting of original and licensed titles, as well as the cost management. Wall Street expects Netflix to post first-quarter earnings per share (EPS) of $4.54, while revenue is expected to rise 13.7% to $9.28 billion.
Netflix launched its advertising plan in November 2022 in a bid to drive subscriber growth amid intense competition in the online streaming space. The company revealed in January that it surpassed 23 million ad-supported subscribers, up from 15 million in November.
“The biggest benefit of the ad tier is that it limits churn,” said Wedbush analyst Michael Pachter, adding that new members added in the second quarter appear more likely to opt for the ad tier than the premium tier. , while retention of premium tiers remains very high. strong.
Investors will also be hoping to learn more about Netflix's plans regarding investing in sports entertainment, especially after it secured the rights to become the home of WWE's flagship show. Raw as well as other live premium live events like Wrestlemania and Real battlestarting next year.
As for subscriber growth, UBS raised its estimates to 7.8 million additions from the previous figure of 4.3 million, while Morgan Stanley expects another healthy contribution to first-quarter net addition from the implementation of shared payment.
The company, known for hit titles like Bridgerton and The diplomatsaid in January that it expects paid net adds to decline sequentially, but increase compared to first-quarter 2023 paid net adds of 1.8 million.
“Expectations will be higher for this quarter given the performance compared to recent ones and due to seasonality. However, there will be some concerns about saturation in key major markets given initial growth due to crackdowns on password sharing and advertising levels. Therefore, a lot of attention will be focused on these areas and whether growth can be sustained,” said PP Foresight analyst Paolo Pescatore.
Brokerage UBS expects second-quarter commentary to suggest slower subscriber growth due to seasonality.
Over the last year, Netflix has surpassed revenue and earnings per share estimates 100% and 50% of the time, respectively.
Searching Alpha and Wall Street analysts are bullish on the stock and have rated it a Buy. Alpha's Quant rating finders rate the stock as a Hold, with a score of 3.48 out of 5, dragged down primarily by the valuation factor.
Over the past three months, earnings per share have been revised upward 18 times versus one downward revision, while revenue estimates have seen 14 upward revisions versus seven downward moves.
The stock has grown almost 26% so far this year.
