📊Netflix will open the earnings season of the largest US companies 🗽 What to expect?

The world's largest streaming platform Netflix (NFLX.US) will traditionally open the earnings season for major U.S. companies. The market mainly expects subscriber growth and an improvement in net profits thanks to a successful policy of divisive slogans and advertising. Will the scale of this improvement positively surprise the market? What to expect in the Q4 2023 report?

Revenue: $8.71 billion forecast

Earnings per share: $2.20 forecast

Subscribers: + 8.9 million in Q4 (total of 24 million new subscriptions, for the whole of 2023)

The market expects operating margin to improve from 14% in Q4 2023. to 24% in Q1 2024 and earnings per share to increase from $2.2 to $4.09, with single-digit revenue growth to $9.3 billion

• The market will be interested in the growth dynamics of new customers, in the context of raising prices of selected subscription plans. Potentially higher growth rates may support the thesis of resilient consumers who want to consume content and are able to pay more for it, giving Netflix more room to expand.
• Markets will also pay attention to the new guidance for the movie division, whose head Scott Stuber will leave the company. Investors expect improvements in cash flow, margins and revenue per subscriber. Netflix was targeting full-year 2023 operating margins of 20% (vs. 18 to 20% previously). An improvement in the top 20% could depend on how quickly the company's new policy translates into profitability.
• Markets expect revenues per subscriber to be relatively weak, as positive advertising revenue will come over time, as will broader account sharing benefits. This gives room for a possible positive surprise if it turns out that both, the company's new policies, will already be well into the report. 
• The company has not yet disclosed the actual number of advertising layer subscribers or the amount of revenue it has generated so far. Providing such information would come as quite a surprise to Wall Street, going by Wells Fargo's expectation of a large, positive contribution from advertising to Netflix's business, as the economy approaches a soft landing and the advertising sector's fortunes gradually improve.

What does Wall Street expect?

• Bank of America believes that Netflix will dominate the streaming market after the company's problems with the rest of the sector (strikes, declines in profitability, investments, etc.) have not helped.  The funds reiterate their belief that competitors will have a hard time catching up with the quality and scale of Netflix's streaming business, potentially arguing for a higher valuation. BofA reiterated its 'Buy' recommendation and raised its target price by more than 10%, to $585 per share

• Oppenhaimer analysts, who were slightly less optimistic, gave a target price of $492, arguing the decisions were based on expected improved profitability from advertising revenues and economies of scale (revenue per subscriber is growing). Wells Fargo put the price at $460 and estimated that 23 million monthly active users would translate into about 13 million subscribers to the advertising platform, by the end of 2023.  Earlier this month, Netflix reported that ad levels had surpassed 23 million monthly active users, an increase of 8 million from the November update.

• Analysts at Evercore ISI have indicated that the market is 'underestimating' the improvement in the advertising business. TD Cowen recently raised its target price to $565 for similar reasons. The fund expects Netflix to be favored by seasonality in its results, which may show that management's forecasts were quite conservative (it expected similar growth to Q3). Blackedge cited a survey of 50 large advertising consumers, according to which interest in advertising services will be widespread (50% of affirmative responses regarding ads on Netflix).

Netflix chart (W1)

Netflix shares have encountered strong resistance at the 61.8 Fibonacci retracement zone of the 2022 downtrend wave, and are currently trading roughly 5% below Wells Fargo's recommendation. A potential downward impulse could even lead to a test of the 38.2 measure, at $370 per share. In the base, upward scenario, the main resistance is at the psychological level of $495 - $500 per share, coinciding with the 38.2 Fibo retracement. Overcoming it could open the way for the company to reach $550 where we see the 71.6 retracement and price reactions from the dynamic discount, from the spring of 2022.

Source: xStation5