Earnings From Netflix Are About to Hit the Streets. Here Are Some Things Traders Should Know

The unofficial commencement of the first-quarter reporting season for technology titans kicks off with Netflix after Thursday's market close. Shares of the media giant have seen a robust start to the year, surging nearly 26% and outpacing the broader S&P 500 index.

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All eyes are now on Netflix as it faces heightened expectations following two consecutive quarters of reporting that resulted in double-digit boosts to its stock price in subsequent trading sessions. While the previous quarter saw Netflix fall short of earnings projections, it exceeded revenue estimates and total membership figures. The company's addition of 13.1 million subscribers surpassed Wall Street's estimates of 8 million to 9 million, partially attributed to its stringent crackdown on password sharing.

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For the first quarter, analysts surveyed by LSEG anticipate Netflix to announce earnings of $4.52 per share on approximately $9.28 billion in revenue. The closely-watched subscriber addition metric is forecasted to reach 4.59 million, according to Street Account.

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The prevailing sentiment on Wall Street is largely optimistic, with many analysts expecting Netflix to either beat or meet expectations. This optimism has prompted several firms to raise their price targets leading up to the earnings report.

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Morgan Stanley analyst Benjamin Swinburne maintained an overweight rating on the stock and increased the price target to $700 per share, implying a 14% upside from Wednesday's closing price. Similarly, JPMorgan's Doug Anmuth raised the price target to $650 per share, citing ongoing subscriber growth attributed to paid sharing initiatives.

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However, even analysts with neutral ratings on the stock have adjusted their price targets upward in recent weeks to reflect the stock's upward trajectory and certain adjustments in earnings and free cash flow. Piper Sandler raised its target to $600 per share, while Deutsche Bank and Barclays revised theirs to $550 from $525 and $475, respectively.

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Beyond financial figures, Wall Street is closely monitoring paid sharing, a practice where Netflix account owners purchase additional slots and invite non-household members to use the service. Although there's no specific metric for paid sharing, its effects are typically observed in subscriber numbers. Analysts anticipate this trend to continue bolstering Netflix's revenues and subscriber counts, at least in the first quarter.

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JPMorgan's Anmuth raised the bank's subscriber addition estimate to 6 million from 4.5 million, citing paid sharing alongside a strong content lineup and the development of Netflix's advertising segment. Similarly, Goldman Sachs and Deutsche Bank analysts revised their subscriber addition estimates upward.

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Despite the positive momentum and benefits derived from paid sharing, some analysts urge caution. Barclays analyst Kannan Venkateshwar maintained an equal weight rating on the stock, expressing concerns about the stock's already-priced-in growth potential and potentially inflated long-term margin expectations. Deutsche Bank's Bryan Kraft also noted a "tricky setup" given the substantial increase in Netflix's share price over the past 18 months.

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While many remain cautiously optimistic, there are concerns about over-excitement regarding Netflix's paid sharing initiative. MoffettNathanson's Michael Nathanson retains a neutral rating, cautioning against overly optimistic forecasts and emphasizing the finite pool of untapped households yet to subscribe to the streaming service.

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In addition to paid sharing, Wall Street is closely monitoring Netflix's ad-supported tier and potential partnerships, such as the collaboration with WWE. Observers are also keen on any hints regarding Netflix's sports strategy, particularly amid speculation about potential acquisitions of NBA rights in other regions.

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As the earnings report approaches, investors and analysts alike are bracing for Netflix's performance and closely scrutinizing any developments that could shape the company's trajectory in the coming quarters.

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