Morgan Stanley’s Benjamin Swinburne may not be the only one referencing the Kate Bush song featured in the hit Netflix series. Weird stuff As Wall Street prepares for the global streamer’s second-quarter earnings report on Tuesday.
“Running Up That Hill,” the analyst called the July 12 report, referring to the singer’s 1985 song that appeared Weird stuff the fourth season and then topped the global charts this summer. Like his colleagues and managers, Swinburne is forecasting a second straight quarter of subscriber losses, with Netflix’s global number of 221.6 million forecast to fall. The analyst expects Netflix to remain “consistent with global pay network additions guidance (-2 million), but we see potential risks from mobile app download trends and are reducing third-quarter net additions (+1.55 million). compared to the previous +2). million). ) high lift factor after launch Weird stuff Season 4.” Swinburne also lowered its 2023 subscriber growth forecast to 7.9 million from 9.3 million and its price target to $220 from $300, but maintained an “equal weight” rating on actions.
Elaborating on rising inflation and recession, Swinburne predicted that both could come to Netflix. “Video streaming revenue may be more vulnerable than expected to the global recession and lower levels of consumer spending,” he argued. “While Netflix’s leading engagement should help it retain customers, its relative premium price will likely pay off as consumers look to reduce their streaming bills.”
But the Morgan Stanley source also hinted at the streamer’s planned launch of a cheaper, ad-supported subscription tier. “In the long term, capitalizing on $160 billion in global video ad spend should allow Netflix to increase ARPU with less reliance on consumer price increases,” Swinburne wrote. The analyst concluded that investors’ views on Netflix will change over time: “The network adds substance to the stock, but the long-term expectation of ARPU growth is more important.” After all, in the past, “Most of Netflix’s revenue growth came from net adds or user growth. As the business matures, ARPU moves from being a secondary driver to a primary one.” That’s why he expects Netflix “to continue to prioritize ARPU growth, including continuing price increases.”
Source: Netflix files
In a July 12 report, Benchmark analyst Matthew Harrigan similarly emphasized: “Long term, leveraging $160 billion in global video ad spend should enable Netflix to drive ARPU growth with less dependence on consumer price increases. In high ad ARPU markets like the US, Netflix is able to offer substantially lower prices and unlock additional network add-ons without sacrificing drive economics. Advertising can also be an easy way to monetize password sharing. Harrigan also noted the changes AVOD incentives can bring to Netflix’s culture. “After leaving its DNA, Netflix will also have to disclose full viewing information to meet advertising market transparency and third-party audit requirements,” he argued.
Wells Fargo analyst Steven Caholl noted in a July 13 report that his team’s analysis of monthly active user data suggested a net drop of just 1 million subscribers in the second quarter. But it fell short of forecasts for a drop of 2 million, in line with management’s guidance. “The main driver for our flat estimates is lower confidence, as we believe historically related metrics are less relevant at this time for Netflix, which appears to be going through a new phase of subscriber churn,” he explained. “Thus, past correlations are less reliable and we don’t think there is enough evidence to suggest earnings growth.” And he emphasized: “We also have some biases in our estimates for the second half, including downward growth pressures and currency headwinds on the financial side.”
So what should Netflix investors expect in terms of subscriber projections this quarter? “We’re feeling low confidence across the street, so this is another quarter where investors are likely to pull back,” Cahal wrote.
Bank of America analyst Nat Schindler reiterated his “underperforming” rating on Netflix in a June 23 report, but lowered his price target from $240 to $196 “given current market conditions, rising content production costs and some high-potential initiatives. .” Schindler added: “Overall, while our research reveals that Netflix is currently the best choice for consumers, we believe our results indicate that streaming has become a commodity very quickly since the pandemic, with original content being the differentiator. key for consumer subscriptions. ” at work”.
Netflix’s launch of domestic subscriptions “appears to be at or very close to peak,” says a Bank of America analyst. “The availability of more services, in addition to more compelling value propositions from competitors, has driven consumers to subscribe to more services overall, keeping Netflix at bay.” However, if a recession occurs, it would not be surprising to see a gradual decline.”
In the short term, everything is still undercurrents. Cowen analyst John Blackledge emphasized in his earnings preview: “Clearly, we expect investors to remain focused on the net sub-range (in earnings report) as well as Q3 guidance. He predicts a net decline of 2 million paid users, “taking into account macro, competition and password sharing.” But it slightly raised its net adds forecast for 2023 due to future levels of hype.
“Netflix stock is down 46% after first-quarter earnings on 4/19 (and down 69% year-to-date), and the pullback reflects a broader trend in the tech sector as well as Netflix-specific challenges (high high In some markets, password sharing (combined with increased competition and macro issues),” Blackledge noted. ahead of the expected launch of the service, which we estimate could add approximately 4 million additional subscribers in the US/Canada and a significant increase in revenue of 23 US./Canada”.
Wall Street is awaiting further updates on the planned crackdown on password sharing and the launch of cheaper AVOD, i.e. ad-supported subscriber levels. Finally, Netflix announced on July 13 that it has selected Microsoft as its global ad technology and sales partner. “We await further details on any revisions to AVOD distribution, password sharing and content strategy to support underdevelopment,” said Cahall. “We believe that the bias for the revision of the estimate for the second half of the year is bearish.”
Source: Hollywood Reporter

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