Netflix (NFLX) reported earnings for its fiscal second quarter after the market closed Thursday, but the streamer will have to set a high bar again as its stock nears record highs.
“NFLX shares are already heavily priced in, but we remain optimistic given the continued significant growth opportunity ahead,” Morgan Stanley analyst Benjamin Swinburne wrote in a note ahead of the report.
Investors have praised the company’s move into sports and live events, while its advertising tier continues to gain popularity. Shares have skyrocketed as a result, up about 33% year-to-date.
At Wednesday’s close, Netflix was trading at $647.46 a share and was little changed ahead of Thursday’s results. Shares closed at a record high of $691.69 on Nov. 17, 2021.
But the stock’s recent rise has raised some concerns on Wall Street.
“We are cautious about the company’s Q2 2024 release,” Citi analyst Jason Bazinet wrote. “We maintain our neutral rating and $660 price target.”
Here’s what Wall Street expects from the report, according to Bloomberg’s consensus estimates:
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Gain: $9.53 billion (Netflix’s guidance: $9.49 billion) vs. $8.19 billion in Q2 2023
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Earnings per share (EPS): $4.74 (Netflix Guidance: $4.68) vs. $3.29 in Q2 2023
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Net subscribers: 4.7 million vs 5.9 million in Q2 2023
In May, Netflix announced that it had won the streaming rights to two NFL games that would air on Christmas Day as part of a three-season deal. The company also told advertisers during its Upfront presentation in May that its advertising tier had reached 40 million global monthly active users — a significant jump from the 15 million users the company revealed in November and an increase of 35 million users compared to the same period last year.
The growth comes as the streamer has raised prices on its ad-free plans in an effort to lure more users to its ad-supported offering. Netflix’s password-sharing approach has also fueled revenue growth and increased the platform’s total subscriber base, which added another 9 million users in the first quarter.
But it hasn’t been an entirely smooth ride upward. In April, Netflix said it would stop reporting subscriber numbers early next year, raising concerns about long-term subscriber growth and sending the stock tumbling.
Netflix also has “bigger competitors to consider, particularly as its own business matures in the coming years,” Swinburne warned. “The obvious examples are Alphabet’s YouTube and Amazon’s Prime Video. Perhaps less obvious are other sources of consumer time such as social media, which are increasingly populated by short-form video.”
“Finally, there is the long-term risk that own margins will increase due to excessive returns, [a new army] or many can gather,” he said. “The potential for AI tools to dramatically lower the barriers to entry into premium, professional video comes to mind in this regard.”
And while the ad layer has seen early success, analysts caution that the initiative still has a long way to go. Jessica Reif Ehrlich, an analyst at Bank of America, said her team sees advertising as “a longer-term story and [does] “Do not expect a material contribution to revenues before 2025.”
She cited the glut of new inventory driven by the launch of several ad-supported services from competitors, along with “the backdrop of a mixed advertising environment.” Still, the analyst reiterated her Buy rating and raised her price target to $740 per share from $700.
“We are raising our target multiple to reflect the continued momentum in the underlying business,” she said. “Backed by its world-class brand, leading global subscriber base, position as an innovator and increased visibility into growth engines, we believe Netflix will continue to outperform.”
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and send her an email at [email protected].
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