Netflix net additions are to be sequentially lower in Q2 on account of typical seasonality.
For Q2, gross margins are guided at 45.89%, marking an increase from 6.93% in the year-ago quarter.
Netflix is poised to report its second quarter 2024 financial results and business outlook post-market on Thursday, July 18, 2024.
Netflix's Q2 revenue is expected to be $9.52 billion, rising 16.33% compared to the last year. Net income grew to $2.08 billion, or $4.74 per share, according to Bloomberg's consensus expectation. Yet new additions will likely be 20.2% lower vs. 2023's 5.89 million.
Subscriber Growth Poised to Slow in 2Q
Netflix net additions are to be sequentially lower in Q2 on account of typical seasonality. However, the company should continue to benefit from its ad-supported tier which is enabling it to attract more price-sensitive customers with a price of just $7 per month in the U.S.
It is estimated that net streaming subscriber additions would be 4.7 million in 2Q, following 1Q's blowout with 9.33 million. Yet new additions will likely be lower vs. 2023's 5.89 million. Though average revenue per member (ARM) is expected to rise in 2Q, it's been under pressure and we expect Netflix to raise prices this year, particularly on its Standard tier, which could support 3-4% ARM gains.
Gross Margins Likely Grow
Netflix executives have urged investors to focus on revenue and operating margins when assessing its progress. The company said it will stop reporting subscriber additions each quarter starting with the first quarter of 2025, and instead will announce them only when major milestones are reached.
Netflix has been increasingly focusing on boosting its margins. For Q2, gross margins are guided at 45.89%, marking an increase from 6.93% in the year-ago quarter. Growth is being driven as revenue growth outpaces operating costs due to economies of scale and also potentially lower content spending growth. Netflix’s continued price increases are also likely helping profitability. That said, margins are likely to trend slightly lower on a sequential basis.
Is Stock Expensive At $685?
Netflix stock has outperformed the S&P 500 Index year-to-date by good measure, gaining over 40% while the S&P 500 index is up nearly 17%.
While Netflix’s recent performance has been strong, consumer spending growth appears to be slowing down, with the metric rising by about 0.2% in April after a rise of about 0.7% in March. Moreover, the unemployment rate in the U.S. has also seen a bit of an uptick coming in at 4% in May, up from 3.9% in April.
These trends could weigh on players such as Netflix who are dependent on strong consumer confidence. Netflix could also see subscriber growth cool, as the impact of its accelerated subscriber ads coming from the twin impact of the password-sharing crackdown and ad-supported tiers is likely to eventually normalize, reducing momentum for the stock.
The target price for Netflix is $660.30, which is about 3.7% below the market price.
Analysts’ Ratings
Netflix Inc has a consensus price target of $650.55 based on the ratings of 33 analysts. The high is $800 issued by Pivotal Research on April 19, 2024. The low is $450 issued by Benchmark on May 17, 2024. The 3 most-recent analyst ratings were released by TD Cowen, Argus Research, and Loop Capital on July 9, 2024, July 2, 2024, and June 18, 2024, respectively. With an average price target of $764 between TD Cowen, Argus Research, and Loop Capital.
