Netflix shares rose in the close of trading on Friday, notching their biggest single-day gain in a year, following a strong string of third-quarter earnings and a series of price target changes on Wall Street for the streaming giant. the transmission media.
netflix (NFLX) which along with the ownership of Alphabet (GOOGLE) YouTube produces more streaming minutes than all of its major competitors combined and is looking to increase its share of revenue from ad-supported tiers on its platform following its crackdown on password sharing last year.
The move was designed to prevent viewers from switching to other platforms by offering cheaper alternatives to Netflix's ad-free offering and has allowed the group to continue adding paid subscribers while opening up a new revenue stream in advertising markets around the world. the world.
However, the pace of subscriber growth is slowing and Netflix has said it will no longer publish details of additions starting next year.
That leaves investors to focus on revenue growth at its ad-supported tiers and profit margins tied to sales from its broader platform and the money it spends on new content and technologies.
That said, Netflix still added about 5.1 million new subscribers during the three months ending in October, a figure that beat the Wall Street consensus forecast of 4 million and included about 2.5 million people who opted in. for the ad-free tier where it was available.
More Subscriber Earnings Forecast
The Los Gatos, Calif., group also beat Wall Street's earnings forecast with a bottom line of $5.40 per share and posted better-than-expected third-quarter revenue of $9.83 billion, up 15 percent. 1% compared to the same period last year.
Adding to the bullish thesis, Netflix also said subscriber gains in the final three months of the year would grow even faster than in the third quarter, thanks in part to new live sports offerings and the return of the hit drama produced in South Korea. 'The squid game.'
“We're in the subscription and entertainment business. And you can see from our results that it's a pretty good business and it appeals to a very large segment of consumers and fans,” co-CEO Ted Sarandos told investors on a conference call Thursday. at night. .
“Our top 10 movies premiering on Netflix have over 100 million views and are among the most viewed movies in the world,” he added.
Related: Netflix gives clues about when subscriber rates could increase
What the group didn't achieve, however, was a price change for its ad-supported tier, which starts at $6.99 in the US, or its main ad-free platform, which costs $15.49 per month.
“We try to think about our pricing not in relation to competitors but in terms of the value we offer to members,” said co-CEO Greg Peters. “That's why we want to have a range of prices. We think that's healthy.”
“So with all that in mind, I would say we will continue to evaluate based on those factors,” he added. “We will continually try to offer consumers a variety of plan options, the right features at the right price, and we will evaluate and evolve it based on what we think works.”
Advertising earnings are just beginning
KeyBanc Capital Markets analyst Justin Patterson, who raised his Netflix price target by $15 to $785 per share following the earnings report, focused more on the group's nascent contribution to advertising revenue and its potential to boost earnings in 2025 and beyond.
“Our sense is that Netflix is hinting at raising prices during 2025, and Netflix has already begun raising prices in select European countries and Japan during” the fourth quarter, he said.
“Given that investments in 2025 will likely support monetization (both through price increases and advertising), we see potential to re-accelerate growth (earnings per share) through 2026.”
Leading analyst Matthew Harrigan, who raised his Netflix price target $10 to $555, said profit margins are likely to widen next year, even without a U.S. increase.
But he added that long-term gains will come from “newer initiatives like (ad-based video on demand) and extensions like games as volume growth moderates.”
Related: Netflix users are losing one of their cheapest options
“We recognize that Netflix is performing significantly better than other media companies with significant global scale advantages, even if the stock appears overvalued to us in a momentum market,” said Harrigan, who gives the stock a sell rating.
“Benchmark's thesis is that consumer preference and profit models dictate a greater push toward a unified global television spend (total addressable market) for advertising and subscription, with Netflix a sure winner even as older media companies struggle.” “he added.
Mike Proulx, Forrester VP research director, noted that while Netflix's financial metrics (revenue growth and profit margins) are heading in the right direction, he remains concerned about the slowing pace of subscriber growth.
“While there is room for net subscriber growth internationally, in the United States things are drying up,” he said. “That's why accelerating growth through advertising becomes critical to Netflix's future strategy and also why the company will stop reporting subscriber numbers in 2025.”
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“In some ways, it's a 'don't look here' tactic to divert attention from a material slowdown in new subscribers and instead focus attention on overall revenue, which gives a more complete picture of the financial health of the company,” he added.
Other changes to the price target include Oppenheimer analyst Jason Helfstein, who raised it by $50 to $825 per share, and Piper Sandler analyst Matt Farrell, who raised it by $40 to $840 per share.
Netflix shares rose 11.1% in Friday's session to close at 763.89 each, a move that extends the stock's year-to-date gain to around 63% with a market value of 328 billion dollars.
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