Netflix Q1 Earnings Up, Targets $765 High, Joins Elite 7

Key Takeaway

• Netflix's Q1 earnings are expected to show a 56% EPS increase to $4.50 and 4.9 million new subscribers, with shares up over 30% this year.
• Strategic content investments and the WWE deal signal strong future subscriber growth and advertising revenue potential.
• Analysts raise price targets, with Pivotal Research's $765 high, citing Netflix's dominant market position and successful expansion strategies.

Earnings Expectations

Netflix is poised to unveil its first-quarter earnings on April 18, with Wall Street analysts forecasting a 56% increase in earnings per share to $4.50 on revenue of $9.3 billion. The streaming giant is also anticipated to report a significant addition of 4.9 million net subscribers. This performance comes in a year where Netflix shares have already seen an over 30% increase. Despite this surge, the company's stock trades at a valuation of more than 35 times earnings forecasts for 2024, which is considered reasonable by market standards given the expected 43% increase in EPS this year.

Content and Competition

Netflix continues to lead in the streaming market despite stiff competition from companies like Apple, Amazon, Walt Disney, and Comcast. The company's vast library of content, which is expanding, plays a crucial role in retaining its market leader status. Analyst Brian White of Monness Crespi Hardt highlighted that many of Netflix's streaming competitors are facing challenges, making them more prone to subscriber churn. Netflix's growing investment in sports content, including popular series like "Drive to Survive" and "Full Swing," alongside a live event featuring Mike Tyson and Jake Paul, is expected to bolster its position further.

Strategic Moves and Analyst Optimism

The announcement of Netflix's deal with WWE to stream the live wrestling show Raw starting in 2025 is seen as a significant content win that could enhance subscriber levels and advertising growth. This move, coupled with Netflix's crackdown on free password sharing, is expected to contribute positively to the company's financial health. Analysts, including J.P. Morgan's Doug Anmuth, have expressed optimism about the WWE deal and the Tyson-Paul match, anticipating it to attract substantial advertising dollars and boost viewership during a typically slower midsummer period. Wedbush Securities analyst Alicia Reese commends Netflix for its global content creation strategy, balancing costs, and increasing profitability, including its expansion into gaming and the introduction of a cheaper ad-supported plan.

Financial Forecasts and Market Position

Analysts have raised their price targets for Netflix, with Pivotal Research's Jeffrey Wlodarczak setting a Wall Street high of $765, maintaining a Buy rating. This optimistic outlook is based on higher subscriber and average revenue per user (ARPU) forecasts for 2024 and beyond. Wlodarczak emphasizes Netflix's dominant position in the streaming wars, attributing its success to a strong content slate, the benefits of the ad-supported tier, and the acquisition of streaming peers' libraries. As Netflix's stock continues to perform well, with a 27% increase this year, the company is seen as leveraging its growing size to enhance its product and expand its business model's moat.

Street Views

• Brian White, Monness Crespi Hardt (Bullish on Netflix):

  "Many streaming competitors appear to be in disarray, and we believe these platforms are more susceptible to churn."

• Doug Anmuth, J.P. Morgan (Bullish on Netflix):

  "The WWE deal will give Netflix valuable, differentiated content with favorable economics & content rights... the Tyson-Paul battle could be the most watched boxing match ever given ease of access & NFLX’s large global sub base, and it should attract meaningful ad dollars while boosting a seasonally slower period in midsummer."

• Alicia Reese, Wedbush Securities (Bullish on Netflix):

  "Netflix should continue to benefit from the right formula with global content creation, balancing costs, and increasing profitability... its cheaper ad-supported plan should reduce Netflix’s churn and lead to growth in viewership."

• Jeffrey Wlodarczak, Pivotal Research (Bullish on Netflix):

  "Netflix is now ‘the world’s dominant pay video entertainment platform.’"