Netflix (NFLX) is set to report its fiscal fourth-quarter earnings on Tuesday after the market close — and expectations are that the streaming giant ends 2023 on a strong footing.
The number of new subscribers this quarter is expected to rise by another 9 million or so, according to the company's own guidance. This suggests net additions for all of 2023 will be around 24 million.
Investors will also continue to evaluate the company's revenue initiatives such as its crackdown on password sharing and its ad-supported tier as well as recent price hikes on certain subscription plans.
Scott Stuber, President of Netflix Films, will host exit The company announced its March position late Monday, which may also attract investor attention.
Netflix's revenue initiatives should help boost profitability metrics like free cash flow, operating margins, and average revenue per member, or ARM.
The company previously said it expects full-year 2023 operating margins to reach 20%, the high end of its previous forecast of between 18% and 20%. However, ARM is likely to remain weak in the fourth quarter before rebounding later this year as the ad layer effect and the effects of higher prices take hold.
Here's what Wall Street expects, according to Bloomberg estimates:
“It has become increasingly clear that Netflix has won the 'streaming wars,'” Bank of America analyst Jessica Reeve Ehrlich wrote in a note before Tuesday's results. “Over the past 18 months, changing market dynamics and investor focus have led profitability, and various talent strikes, have led many media companies to re-evaluate their aspirations for streaming.”
These changes included reducing spending on content and increasing third-party licensing — an acknowledgment that “not all media companies will be able to achieve Netflix's global reach and streaming reach,” she said. The analyst maintained her Buy rating and raised her price target to $585 per share from the previous price of $525.
Earlier this month, Netflix said its ad level had surpassed 23 million monthly active users, up 8 million from the November update.
It's worth noting that monthly active users, known as MAUs, are not the same as paying subscribers. The company has not yet revealed the actual subscriber numbers for the ad tier, or how much revenue it has generated so far. Monthly active units can include multiple people using the same account.
However, those numbers reflect an accelerating pace of ad-supported subscriptions, which is good for profitability, said Oppenheimer analyst Jason Helfstein, who has an outperform rating on the stock and a $492 price target.
“Although the acceleration in sub-growth is positive, the faster NFLX reaches broad ADS, the faster ARM levels will rise,” he wrote in a note to clients, adding: “The bullish thesis is strengthening.”
Wells Fargo analyst Steve Cahall, who has an outperform rating and a $460 price target, estimates that 23 million ad-based MUA could translate into about 13 million ad-based subscribers as of the end of 2023.
“We believe the No. 1 NFLX initiative for 2024 will invest in growing advertising over the long term,” he said.
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