Netflix shares have come roaring out of the gate, rising 15% on a wave of Wall Street enthusiasm about its latest quarterly earnings report.
The streaming giant soared above analysts’ expectations for third-quarter subscriber gains and earnings, and also reported a surge in free cash flow and signs of growth in its nascent advertising business.
At mid-day, shares were at $398, with trading volume at more than three times normal levels. The upturn has come against a muted backdrop for the broader markets and a mixed bag so far for media and tech stocks.
Laurent Yoon, an analyst with Bernstein, spoke for many in his note to clients. “They crushed it,” he wrote. “The management deserves an Emmy for managing investor expectations.” Yoon maintains a “market perform” (neutral) rating on the stock, however, so he included a caveat. The third quarter results prompt “one key question in terms of subscriber growth: Did Netflix pull-forward future paid-sharing net adds, or is the addressable market for paid-sharing bigger than anticipated? We expect it is likely a bit of both given the magnitude of the beat.”
Michael Nathanson of MoffettNathanson, who also rates the stock “neutral,” likewise had plenty of praise for the quarterly numbers. He told clients the earnings news included “a series of upside surprises across a variety of 2023 and 2024 metrics that have the net effect of materially lifting 2023 free cash flow and 2024 EPS.” That information will “help stabilize Netflix’s recently
turbulent stock price,” which came into earnings on an 18% slump dating to mid-September.
Nathanson said a set of price increases phased in by Netflix in three of its biggest markets was as particularly welcome move. The hikes mean that Netflix “is further incentivizing new and existing members to sign up for its materially lower priced ad-supported plan while also driving [average revenue per member] among households that are either price inelastic and/or advertising adverse.”
Bulls on the Street, meanwhile, got even more bullish. Jeffrey Wlodarczak of Pivotal Research, who rates the stock a “buy” with a sky-high $600 12-month price target, issued an ebullient note. “The company is demonstrating a great start on piracy monetization that we believe can be a subscriber growth engine through most of ’24 (even in a potential choppy economic climate),” he wrote.
Alicia Reese of Wedbush echoed that sentiment. “Netflix is well-positioned in this murky environment,” in her view, “as streamers are shifting strategy.” Going forward, she added, Netflix “should be valued as an immensely profitable, slow-growth company.”
