Netflix Gains After Losing Fewer Users Than Expected, Stifel Upgrades to Buy
2022.07.20 13:49
Netflix Gains After Losing Fewer Users Than Expected, Stifel Upgrades to Buy
By Senad Karaahmetovic
Shares of Netflix (NASDAQ:NFLX) are up more than 7% in premarket trading Wednesday after the streaming giant lost fewer-than-expected subscribers.
Netflix reported a streaming paid net change of -970,000, compared to +1.54 million in the year-ago quarter, while analysts were expecting -2 million. Streaming paid memberships totaled 220.67 million in the period, up 5.5% YoY and above the consensus estimates of 220.2 million
Netflix reported EPS of $3.20, compared to $2.97 in the year-ago period and topping the consensus projection of $2.91 per share. Revenue came in at $7.97 billion, up 8.6% YoY, though missing the consensus projection of $8.04 billion.
The operating margin stood at 19.8%, compared to 25.2% in the same quarter last year, and below the analyst estimates of 21.4%.
Looking ahead to Q3, Netflix expects streaming paid net change to be +1 million, missing the consensus estimates of +1.8 million. The company expects revenue of $7.84 billion in the third quarter, while analysts were looking for $8.1 billion. NFLX expects Q3 EPS of $2.14, also below the analyst estimates of $2.72 per share.
Streaming paid memberships are expected to be around 221.67 million in the current quarter, slightly below the consensus projection of 222.2 million. Netflix sees an operating margin of 16% in Q3, compared to analysts’ expectations of 20.1%. For the full year, the streaming service provider expects an operating margin in the range of 19% to 20%, while analysts were looking for 19.5%.
The new season of Stranger Things recorded 1.3 billion hours viewed in its first four weeks, making it Netflix’s biggest season of English television ever. The company is now working to monetize more than 100 million households that are using Netflix but are not directly paying for the service.
“Our challenge and opportunity is to accelerate our revenue and membership growth by continuing to improve our product, content, and marketing as we’ve done for the last 25 years, and to better monetize our big audience,” the company said in a letter to shareholders.
A Stifel analyst upgraded Netflix to Buy from Hold with a $250 per share price target, up from $240.
The upgrade move comes amid the stabilization of the subscriber base, with the prospect of a prolonged period of subscriber losses now “increasingly unlikely.”
“Investor focus can now appropriately shift to the viability of Netflix’s growth initiatives, including monetizing password sharing and the introduction of ad-supported tiers, both of which will be introduced next year. To reinvigorate growth, Netflix will need to solve its affordability issues in emerging markets and increase monetization in relatively mature markets. The company has a number of increasingly defined levers to solve these issues, with a proven management team and improving FCF dynamics. We see numerous potential catalysts over a multi-year period as management realigns the business for its next phase of growth,” the analyst said in an upgrade note.
The analyst also sees a “compelling” valuation for a “dominant business with considerable optionality ahead.”
For a Morgan Stanley analyst, Netflix is still a show-me story. The analyst raised the price target to $230 from $220 after the streaming company lost fewer subscribers than expected.
“At a high level, Netflix’s ambitions are to accelerate revenue growth while moderating its content investment growth. If successful, shares should outperform. However, it remains early in its monetization initiatives and while success is not priced in, neither in our view is failure,” the analyst told clients in a note.
