By Bill Alpert
Netflix reports second-quarter earnings after the close Thursday, and judging from the stock price, it has a lot to live up to.
At a recent $650, shares of the streaming company are up by a third this year. That is twice the S&P 500's 17% rise.
But even at more than 35 times Wall Street's consensus forecast for this year's earnings, Buy ratings on the stock outnumber Holds by two-to-one.
"Netflix has managed to establish a virtually insurmountable lead in the streaming wars," wrote Wedbush analyst Alicia Reese, as she reiterated her Outperform rating last week, "and we expect competitors to continue to flail while trying to replicate Netflix's business model."
While Reese notes Netflix will eventually pivot from a high-growth, low-profit business to a slow-growth, high-profit one, neither she nor the analyst consensus expects to see slow growth in June's results.
Second-quarter revenue is projected to come in above $9.5 billion, up 16% year-over-year, while earnings will jump 44%, to $4.74 a share, according to analysts surveyed by FactSet.
Netflix shares slid in April, when the company said it would stop giving quarterly counts of its subscribers in 2025. Some investors took that as a sign subscriber growth was ending. The stock's subsequent recovery suggests such worries have dissipated.
But that doesn't mean member trends won't be scrutinized in June's results. The sell-side consensus expects Netflix added about 4.5 million net new subscribers in the quarter -- most of them international -- to bring the total to 274.5 million.
What counts more, of course, is what buy-side money managers and individuals expect. A buy-side survey reported Wednesday by Guggenheim Securities found money managers expecting more -- that is, more than eight million net new adds in the quarter.
Other things to watch for include the performance of the streamer's new advertising-supported tier. At Wedbush, Reese believes Netflix is nearing the point at which the ad tier will begin to contribute to revenue and earnings growth. That will help lift operating profit margins from the already sturdy level of 26.4% that she modeled for June, to the near 30% that she predicts for coming years.
"We believe Netflix will continue to expand profitability and generate increasing free cash flow, supporting our Outperform rating," she concludes.
Write to Bill Alpert at william.alpert@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
July 18, 2024 00:30 ET (04:30 GMT)
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