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This hasn’t been the most fruitful year for Netflix (NFLX), even as most tech stocks have fared exceptionally well in 2023. Netflix’s stock has gained 21.9% year-to-date, while the benchmark Nasdaq Composite ($NASX) has risen nearly 30%.
In comparison, here’s how the other FAANG stocks have performed so far this calendar year:
- Meta Platforms (META), previously known as Facebook: up 165%
- Amazon (AMZN): up 56%
- Apple (AAPL): up 38%
- Alphabet (GOOGL), previously known as Google: up 57%
Valued at $157.61 billion, Netflix is the global streaming market leader. Inflation and rising competition in the streaming market have slowed Netflix’s growth in the last few quarters. Furthermore, it made some major changes this year, which has made some investors skeptical of its growth prospects.
However, despite the relatively slow growth, most analysts believe the stock has more upside - and the company appears to be optimistic for the remainder of the year. Even amid increased competition, Netflix still has a stronghold in the streaming business, with revenue up from $16 billion to $32 billion in the last five years.
Netflix Expects Growth to Accelerate Through Year-End
This year, Netflix made significant changes to its C-suite leadership. Ted Sarandos and Greg Peters were named co-CEOs in January, with Reed Hastings staying as Executive Chairman. Amy Reinhard took over as President of Advertising from Jeremi Gorman earlier this month. A sudden change in C-suite leadership usually tends to shake up the stock in anticipation of how the new management will affect the company.
In May, Netflix also announced its subscribers will be unable to share passwords anymore. It introduced paid sharing in more than 100 countries, charging an additional $8 monthly to add a member to your account. The company received a lot of backlash shortly after this decision, with the hashtag “CancelNetflix” trending on Twitter (now known as X).
While many expected this decision to result in more subscriber cancellations, Netflix announced in its Q2 results that it added 5.9 million globally. The streamer's total revenue was $8.2 billion, up 3% year on year, with $1.5 billion in net profit.
Management expects revenue to grow in the second half of this year, driven by the successful rollout of its paid-sharing launch in all the remaining countries, and continued steady growth in its ad-supported plan. Netflix expects revenue to be around $8.5 billion in Q3, which would be an uptick from $7.9 billion in the year-ago quarter.
The company anticipates generating $5 billion in free cash flow (FCF) this year. Management stated that the Hollywood writers' strike reduced cash content spending for 2023. Since the strike has ended, Netflix anticipates spending more on cash content while still generating significant positive FCF in 2024.
What Do Analysts Expect From Netflix’s Q3 Results?
Ahead of this Wednesday's earnings report, analysts predict that Netflix's Q3 revenue will come in at $8.54 billion, an 8% year-over-year increase, and in line with management’s forecast. Earnings per share (EPS) could grow by 12% year-over-year to $3.47.
For the full year 2023, revenue could increase by 7% to $34 billion. Analysts’ estimate for FY EPS is $11.94, up 20% from EPS of $9.95 in 2022.
Decelerating growth has made some analysts slightly less optimistic about Netflix’s stock. Last week, analysts at Morgan Stanley, TD Cowen, and Wells Fargo all reduced their respective price targets for Netflix, while Wolfe Research downgraded NFLX from Outperform to Peer Perform. The analyst stated, “The company's 2024 average revenue per user expectations look full while today's paid-sharing net additions will lead to tomorrow's gross adds shortfall.”
Wolfe has no price target for the stock, but believes Netflix's “valuation is reasonable but will not withstand falling growth.” Currently, Netflix trades at 30 times forward earnings.
At present, out of the 37 analysts following Netflix stock, 20 have a “strong buy” recommendation, 15 say it's a “hold,” and two propose a “ strong sell.”
Based on analysts' average price target of $444.39, Wall Street expects potential upside of about 23% in the next 12 months. The highest target price stands at $600 and the lowest at $215 for Netflix.
The Takeaway
According to reports, Netflix plans to raise the price for ad-free streaming after the WGA strike ends, but the company has made no official announcement so far. It will be interesting to see if the decision, if executed, increases revenue as the company competes with other streaming platforms such as Alphabet’s YouTube, Disney (DIS), Amazon's Prime Video, and others.
With the strike over and backlash over paid sharing waning, Evercore ISI analyst Mark Mahaney believes that price hikes and improved content could be positive catalysts for the company in 2024. He is optimistic Netflix will be able to meet its 2024 EPS target of $15 per share. The analyst gave the stock a Buy rating. For 2024, the consensus estimate for revenue is $38 billion, representing growth of 13% with EPS of $15.1 per share.
We will know more about Netflix’s performance and growth strategies for 2024 when it releases its earnings this Wednesday, Oct. 18.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
