Netflix shares closed modestly lower Wednesday as investors looked to the streaming media group's upcoming earnings report and a pair of Wall Street analysts underscored differing views on its growth and profit prospects heading into the final months of the year.
Netflix, (NFLX) . which has added around $90 billion in market value so far this year, has driven solid subscriber growth by offering ad-supported accounts that offset the impact of a crackdown on password sharing.
Around 17.4 million people have opened new accounts with the Los Gatos, Calif.-based streaming giant over the first six months of the year, more than doubled the 7.7 million added over the comparable 2023 period.
That growth rate is likely to slow over the three months ending in October, and possibly into the fourth quarter, amid a pullback in consumer discretionary spending and a plethora of competitive pressures in the online streaming market.
Netflix in fact will stop publishing subscriber-growth figures starting next year as it looks to highlight the impact of its ad-sales business, which grew 16.8% over the three months ended in June, outpacing the 14% advance in overall group revenue.
That likely puts investors' focus on both its ability to wring wider profit margins from its subscriber base, likely from price increases, as well as on the health of the global online ad market.
Image source: Jakub Porzycki/NurPhoto via Getty Images
Netflix, which hasn't changed its U.S. prices since 2022, charges $6.99 per month for the basic ad-tier subscription and $15.49 per month for its standard ad-free version.
Netflix price hikes are coming
"The market will be especially attentive to any price hike announcements when Netflix reports ... despite mounting consumer wallet resistance to price hikes as well as member growth concentration in much lower price point emerging markets," said Benchmark analyst Matthew Harrigan, who carries a 'sell' rating and a $545 price target on Netflix stock.
The group's hammerlock on the global streaming market remains impressive, however, and Harrigan says Netflix (as well as Alphabet's (GOOGL) YouTube) has more streaming minutes viewed than Amazon's (AMZN) Prime Video and Walt Disney's (DIS) Disney+ and Hulu combined.
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"We now view the margin assumption as more tenable than the member forecast," Harrigan said. "Advertising contribution is presently relatively nascent as the ability to monetize rapidly growing advertising inventory is lagging scaling momentum."
Christmas Day NFL game a Netflix catalyst
KeyBanc Capital Markets analyst Justin Patterson, however, sees solid near-term catalysts for subscriber growth tied to Netflix's recent move into live sporting events, including a Christmas Day NFL game.
"We believe Netflix's strengthening content slate should drive better viewership and support improved monetization," said Patterson, who lifted his price target on Netflix stock by $25 to $760 a share in a note published late last month.
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He also says the group is likely to implement its first price increases in more than two years to support fatter profit margins and boost 2025 revenue projections.
"Netflix is now at a lower price than competing ad-supported services and in line to below most ad-free services," Patterson said.
"We believe raising prices on both the ad-supported and standard price plans could alleviate concerns about ad [average revenue per user] dilution and support 2025 revenue growth in the low-teens" percent.
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Across Wall Street analysts see Netflix posting third-quarter earnings of $5.12 a share, a 37.3% increase from the same period last year, with revenues rising 14.4% to $9.77 billion.
Headline subscriber gains are likely to come in at 4.1 million, according to LSEG forecasts, with operating margins improving to around 27.8%, well ahead of the group's 26% target for the full year.
Netflix shares ended 0.56% lower in trading Tuesday to close at at $702.00 each, a move still leaves the stock up more than 50% for the year.
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