For the first time since 1960, we are dealing with a double strike in the film industry. Both writers and screenwriters are striking, which largely impacts film and series producers like Netflix. On the other hand, we also have a Hollywood actors' strike, which also affects Netflix, though to a significantly lesser extent than major film studios. In addition, Netflix is also operating in the face of changes to the distribution of its product, related to so-called "password sharing". How will all this impact the financial results of the streaming giant? Will Netflix maintain its leading position? Will it continue to make up for market losses compared to the record valuations during the pandemic?
Massive growth of tech companies
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Open real account TRY DEMO Download mobile app Download mobile appWe've seen very strong growth in the tech Nasdaq this year, which has already risen well above 30%. The FAANG+ index, which includes such "mega" tech companies as Meta, Amazon, Apple, Netflix, Alphabet, Nvidia, Tesla, and Microsoft, has reached historical highs. Will the results justify this rally? Today we will know the results of Netflix and Tesla, which will largely answer this question.
What are our expectations before tonight's Netflix report?
- Adjusted EPS is expected to be 2.9 USD, which is to be a decline of 22.2% y/y. It is worth noting, however, that 6 out of the last 8 EPS reports surprised positively. Forecasts were also raised in the last 4 weeks.
- Revenues are expected to be 8.289 billion USD for Q2 2023, which is to be a growth of 4% y/y. However, the company usually disappointed in this respect.
- Q3 outlook is also expected to be better, according to analysts, with revenues of around 8.67 billion USD and an EPS of 3.23 USD.
- The company's shares gained an average of 11.8% the day after the results were announced, based on the last 8 financial reports. At the same time, the implied movement from the company's options is 8.21%. Of course, if the report disappoints significantly, there is the possibility of major declines, looking at 2022, when after the January and April reports we saw huge downward gaps.
Netflix is expected to show a significant increase in users, considering the new ad-supported account option. According to Bloomberg, Netflix will show an increase in average revenue per user, as the company has been asking users for increased payments due to account sharing, if they want to continue using streaming services. It's worth noting that the company has been using this tactic for a year, but only since May in the US, which may show the real impact of this action on results. Bloomberg consensus predicts an increase in paying users by 2.03 million, mainly in the APAC region. The number of paying users is expected to reach 234.5 million.
Summary of expectations for Netflix. Source: Bloomberg
As you can see, the company is also improving its revenue results, although there is no clear trend in terms of net financial results. Source: Bloomberg, XTB
New Recommendations
The latest recommendations from Guggenheim indicate that the new account with ads and increased payments for shared accounts could improve earnings prospects in the near future. Guggenheim believes that Netflix added as many as 2.6 million paying subscribers. This is expected to lead to better results by the end of the year. The target price for the company is 500 USD per share.
Jefferies also has a new forecast, pointing to a price of 520 USD per share. On the other hand, we have Macquarie's neutral forecast with a target price of 420 USD and a sell recommendation from Benchmark CO with a target price of 293 USD.
Will the Hollywood Strike Threaten Netflix?
Investors believed in the company before the results were published, which resulted in a Tuesday rally of about 5%. Analysts suggest that the strike of screenwriters and actors in Hollywood could be a cause for concern, but at the same time, it affects the entire industry. On the other hand, Netflix has a lot of titles that have not yet been published, and it also has production outside the US, which will continue to expand the available library of titles. In addition, some analysts expect Netflix to focus on acquiring titles instead of its own production in the near future, which will increase the available base and at the same time leave some cash within the company.
Compared to other companies offering streaming, the company performs best in terms of growth this year. Amazon looks very similar, but streaming is just a small part of its business. Netflix is relatively the most expensive company in the streaming segment (only Amazon is more expensive). The current PE for Netflix is around 55 with a perspective of dropping to 32 looking at future earnings. For Disney, it is 35 and respectively 17. Paramount, on the other hand, has a very low PE ratio of 8.7 and a forward PE of 11.6. Source: Bloomberg, XTB
Netflix has had a very good half-year and a strong past 12 months, looking at the local lows from June of last year. However, the company's shares are still about 45% below historic highs, and the shares have grown more slowly than the US100 recently. By comparison, however, Disney remains at a very low level, hence the probably very low valuations looking at PE ratios. However, it is worth noting that Disney is in a significantly worse situation looking at the recent screenwriters' and actors' strike in the USA. Source: xStation5
