Netflix (NFLX) reports second-quarter results after the market closes on Thursday, but with its stock price nearing all-time highs, the streaming company will once again face tall hurdles to overcome.
“While a lot is priced into NFLX stock, we remain bullish given the significant growth opportunity ahead,” Morgan Stanley analyst Benjamin Swinburne wrote in a note ahead of the report.
Investors have praised the company’s expansion into sports and live events, while its advertising division continues to gain momentum, sending the stock soaring as a result, up about 33% since the start of the year.
At Wednesday’s close, Netflix stock was trading at $647.46 per share, little changed before Thursday’s earnings report. The stock closed at an all-time high of $691.69 on Nov. 17, 2021.
But the recent surge in stock prices is causing some anxiety on Wall Street.
“We remain cautious heading into Q2 2024 announcement,” 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 consensus estimates:
Revenue: $9.53 billion (Netflix guidance: $9.49 billion), vs. $8.19 billion in Q2 2023
Earnings per share (EPS): $4.74 (Netflix guidance: $4.68) vs. $3.29 in Q2 2023
Net subscriber growth: 4.7 million vs. 5.9 million in Q2 2023
In May, Netflix announced it had acquired streaming rights to two NFL games on Christmas Day as part of a three-season deal. The company also told advertisers during its upfront presentation in May that its advertising demographic had reached 40 million monthly active users worldwide. This was a significant increase from the 15 million users the company announced in November, and an increase of 35 million from the same period last year.
The growth came as streaming companies raised the prices of their ad-free subscriptions to attract more users to their ad-supported services. Netflix’s crackdown on password sharing also boosted revenue growth and boosted subscriber numbers across the platform, which added more than 9 million more users in the first quarter.
But the growth so far hasn’t been all smooth sailing: In April, Netflix said it would stop reporting subscriber numbers early next year, raising concerns about long-term subscriber growth and sending its shares plummeting.
Swinburne also warned that Netflix “has larger competitors to consider, particularly as its own business matures over the coming years. High-profile examples include Alphabet’s YouTube and Amazon’s Prime Video. Other sources of competition for consumers’ time, such as social media, are increasingly cluttered with short-form video but may be less visible.”
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“Finally, the long-term risk is that as their profits grow due to the huge profits, they may assemble a new army, or many,” he said. “In this regard, the potential for AI tools to dramatically lower the barrier to entry into premium pro video comes to mind.”
Despite the advertising division’s early success, analysts caution that the effort still has a long way to go. Bank of America analyst Jessica Reif Ehrlich said her team views advertising as “a long-term story, and we don’t expect it to contribute significantly to revenue until 2025.”
She cited a glut of new inventory as competitors launch ad-supported services and a “mixed advertising backdrop.” Still, the analyst reiterated her buy recommendation and raised her price target to $740 from $700.
“We have increased our target multiple to reflect the continued momentum of our underlying business,” she said. “We believe Netflix will continue to deliver outstanding performance, driven by its world-class brands, global subscriber base, innovator status and growing recognition among its growth drivers.”
Alexandra Canal is a senior reporter at Yahoo Finance. X @allie_canal, follow her on LinkedIn and email her at alexandra.canal@yahoofinance.com.
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