Netflix Shares Rise, But Wall Street Still Looks Divided On The Future

Shares of Netflix (NFLX) closed 13% higher Wednesday after the company’s massive third-quarter earnings report. The platform delivered a beat on both the top and bottom lines, alongside 2.41 million net subscriber additions – crushing estimates of 1 million.

“This company is clearly back on track,” Geetha Ranganathan, senior media analyst at Bloomberg Intelligence, told Yahoo Finance Live as analysts begin to separate into optimistic and not-so-optimistic buckets.

Following the strong results, Michael Morris of Guggenheim maintained his Buy rating and raised his price target by $40 to $305, while Michael Pachter of Wedbush Securities raised his price target to $325 (versus $280), citing “higher expectations for free cash flow”.

Evercore ISI’s Mark Mahaney raised his price target by $40 to $340 and reiterated his Outperform rating. In a note to customers, the analyst wrote: “Netflix’s fundamentals have stabilized and now comes the internet’s biggest catalyst for consumers: the launch of Netflix’s ad-supported offerings in November.”

Will ad-supported be the answer? The split of Wall Street

Despite concerns that current subscribers will trade in for the ad-supported version, Citi CEO Jason Bazinet told Yahoo Finance Live that he sees the introduction of ads as a lucrative source of income.

“It’s not a spin-down risk, it’s a spin-up opportunity,” the analyst claimed, assuming the company could earn $10 or more in ad revenue per ad-tier subscriber in the U.S.

Ranganathan agreed that ad-supported will be a strong future catalyst, explaining that the upcoming low is priced “competitively” at $6.99 per month in the US.

Dave Heger, senior equity analyst at Edward Jones, added that “the ad-supported service should contribute to subscriber growth in international markets” – a particularly salient point amid the strengthening US dollar.

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“The lower price level will be attractive in certain overseas markets – there is more opportunity to pay at that lower price level,” he said, assuming ad revenue will help offset the lower price points and, in turn, the foreign exchange ( FX) will compensate. pressure.

Netflix lowered its forward guidance, citing FX challenges in particular, as the US dollar continues to gain strength against most major currencies.

“Based on our YTD updates and Q4 guidance, we estimate that this appreciation since January 1, 2022 will negatively impact our revenue and operating income for the full year 2022 by ~$1 billion and $0.8 billion, respectively” , the company stated in its earnings release.

But not everyone on Wall Street is convinced.

Bank of America reiterated its Underperform rating and price target of $196, writing in a note to customers that Netflix’s “ad-tier is difficult to understand as a growth engine, especially with lower cost-per-thousand impressions (CPMs) outside English-speaking markets.”

“We are still unable to achieve a convincing international breakeven and are unsure of the consumer value proposition as high CPM countries have almost fully penetrated,” the note continued, adding that FX- headwinds, cyclical content and long-term challenges still remain.

Similarly, despite raising his price target for the stock by $10 to $225 a share, CFRA analyst Kenneth Leon maintained his sell recommendation, writing that stocks are currently “overvalued.”

“Netflix is ​​not a growth company … It is a slow-growing media company with single-digit revenue growth and intense competition,” the analyst wrote in a note to customers, adding that any material impact from the impending ad-supported level will only come in. be realized in the second half of 2023.

Macquarie analyst Tim Nollen, who maintains a neutral rating for the stock, said he expects fourth-quarter earnings and earnings to be weighed down by currency and content costs.

He added that while he is optimistic about growth from the ad tier, as well as efforts to reduce password sharing, these revenue streams will take time to translate into a meaningful benefit. As a result, Nollen estimates only a modest EBITDA increase in 2023.


The cast of “Stranger Things” pose together during the season four premiere at Netflix Studios Brooklyn on Saturday, May 14, 2022 in New York. (Photo by Evan Agostini/Invision/AP)

Content wins

Tuesday’s earnings marked the first time this year the company has added subscribers, mostly from outside the United States

Netflix lost 200,000 and 970,000 subscribers in the first and second quarters, respectively. The company said it will stop advising on paid memberships in the future due to the introduction of new revenue streams. For now, however, it estimates an addition of 4.5 million subscribers next quarter (above previous forecasts of 3.9 million).

Netflix credited the quarter’s success to several TV and movie hits, including “Monster: The Jeffrey Dahmer Story,” “Stranger Things S4,” “Extraordinary Attorney Woo,” “The Gray Man” and “Purple Hearts.”

Speaking about the earnings call, Netflix Co-CEO Ted Sarandos said the company, which has committed to spending $17 billion on content by 2022, is working to get “better and better” at securing “more impact per $1 spent.” billion than anyone else.”

“That’s how we focus on it – we spend at about the right level,” the director insisted.

Underlining its streaming capabilities relative to competitors, Netflix wrote in its earnings release, “Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is difficult – we estimate they are all losing money, with a combined operation.” losses of more than $10 billion by 2022, versus Netflix’s $5 to $6 billion annual operating profit.”

Bloomberg’s Ranganathan noted that as competitors spend less money and focus more on profitability, Netflix should come out on top.

“I think that really gives Netflix an edge as they try to get more and more bang for their buck,” Ranganathan said, adding that greater engagement will also be especially helpful for advertisers.

Alexandra is a senior media and entertainment reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at

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