Netflix’s stellar earnings get mixed reviews (NFLX)

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Not everyone was impressed by Netflix’s (NASDAQ:NFLX) strong earnings report.

Shares are up 14% on Thursday after the streaming company reported its best subscriber growth in years and said it would raise prices.

Goldman Sachs noted the report “was much better than feared and outperformed certain recently lowered expectations.”

However, the investment firm added there is “likely to be some continued debates about the linearity of growth and margin performance in 2024 and the years ahead and how NFLX will navigate through the wider media consumption landscape from its current position as an industry leader in terms of streaming media.”

Goldman Sachs maintained its Neutral rating on the company and bumped its price target to $400 from $390. The bank said fourth-quarter sales guidance came in below estimates amid pressure on membership revenue due to limited price increases, foreign exchange headwinds and more members in countries where fees are lower.

Management also continued to note “somewhat low visibility around future performance given the macro environment, their strategic initiatives (advertising and password sharing) & the ongoing SAG-AFTRA strike.”

Barclays, which has a Neutral rating on the stock, also acknowledged the better-than-expected results, but added they may not help estimates for next year and beyond.

However, unexpected price increases after “a major implicit price increase in the last two quarters due to the roll out of paid sharing” makes the company’s guide to healthy subscriber growth comparable to the third “but with a major +/- few million variance caveat which almost makes the guidance on this metric meaningless.”

“This process is also effectively pulling forward future growth to some extent and therefore is not without trade offs. This is why what matters more in our opinion is revenue growth rather than just price or unit growth,” Barclays analysts wrote in a note.

Edward Jones rates Netflix (NFLX) a Hold as it sees developed markets becoming saturated.

On the upside

KeyBanc Capital Markets upgraded Netflix (NFLX) to Overweight from Sector Weight with a $510 price target.

“Netflix is entering [2024] a cleaner story as: paid sharing appears to have changed Netflix’s ability to reach the next ~250M subs; operating profit and FCF are steadily ramping; and buybacks should support a 25%+ EPS growth profile,” the bank wrote in a note.

The streaming company’s paid net add growth and pricing initiatives are about to take hold.

“Coupled with a new share repurchase authorization of $10B, we believe Netflix has ample levers to drive EPS growth,” KeyBanc Capital Markets said.

Morgan Stanley also upgraded Netflix, moving its rating to Overweight from Equalweight, and its price target to $475 from $430.

Amid rising anxiety and a falling stock price, “the business has been accelerating, the password crackdown is working and the competition has pulled back,” Morgan Stanley said.

The company provided “clear guidance for its content spending and margin expectations for ’24, removing some added uncertainty.”

Hibernation mode

Deutsche Bank said the uplifting results sent bears back into hibernation.

“The announcement of price increases in the US, UK, and France will provide some ARPU lift going into year-end, along with a benefit from discontinuing the Basic plan (no ads) in additional markets next week (Germany, Spain, Japan, Mexico, Australia and Brazil),” the bank said. Deutsche has a Buy rating on the stock.

“Management positively surprised us today in announcing that they expect 2024 OI margin to be in the 22-23% range, versus Bloomberg consensus of 22.1% and in the face of significant concerns over margin next year in light of management’s recent commentary at an investor conference, which was interpreted by many investors as ‘talking down margins’ in 2024 and beyond.”

Going forward, Netflix should have less volatility in international currency fluctuations as the company implements a hedging program next year, Deutsche said.

Netflix (NFLX) remains on Wedbush’s Best Ideas List, given the bank’s view that the company can generate significantly more free cash flow than its guidance suggests. Wedbush reiterated an Outperform on the stock.

“Netflix has reached the right formula with its global content to balance costs and generate increasing profitability, while password sharing crackdown and eventually its ad-supported tier should further boost cash generation,” the firm said.

Evercore ISI also reiterated its Outperform saying that ad- supported offering and password-sharing initiatives will serve as catalysts driving material reacceleration in revenue and earnings per share growth.

Netflix (NFLX) is a leader at a time when intensity is declining and competitors are raising prices in the hunt for profitability.

Analysts are mixed on Netflix (NFLX). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Seeking Alpha’s quant system, which consistently beats the market, rates the stock a HOLD.