JPMorgan expected that Netflix’s ad-supported plan may bring in 250K users in Q4 and the company can add 4.75 million net new subscribers in Q4, while Needham estimated that its Q4 revenue will be $7.78B and lowed FY23’s revenue to be $33.4B.
Netflix is scheduled to announce Q4 earnings results after the market closes on next Thursday, January 19.
Latest Results
It reported Q3 revenue of $7.93 billion, up from $7.48 billion a year earlier, earnings of $3.10 per share fell from $3.19 a year ago, and it added 2.41 million net new subscribers in Q3 after contracting by 200,000 and 970,000 in Q1 and Q2.
Q4 Guidance
The company expects EPS of $0.36 and sales of $7.78 billion in Q4, with the sequential drop due to a strengthening of the dollar. The currency hit to sales in 2022 is set to be about $1 billion, and it expects global steaming paid net additions of 4.5 million in Q4.
Management's Top Priority for 2023 Is Revenue Growth
In the UBS conference, management stated that their top priority for 2023 is to reaccelerate revenue growth. Also, management will return to margin expansion over time as it looks to overcome the current short-term challenges.
In terms of annual content spend, they believe that $17 billion is about the right amount of content spending they expect annually and will look to improve the efficiency of this spending by ensuring that in 2023, the release slate is smoother and that more popular local content can make its way globally.
Ad Tier and Paid Sharing Initiatives Update
Management expects the ad tier to be flexible and adjust the offering over time and make improvements for both consumers and advertisers. There were also suggestions that Netflix may launch additional tiers beyond Basic over time. More importantly, management does not expect much cannibalism in terms of migration between plans based on their historical records. In addition, they do not expect incremental costs for running the new ad tier.
For paid sharing, management expects that the paid sharing initiative will have an impact similar to normal price increases and expects that there will be a minimal negative impact when it is launched.
Analyst Opinions
Bloomberg analyst Geetha Ranganathan said a slow start for Netflix's ad-supported plan shouldn't cloud its long-term outlook, given it's still in the early days. The ad tier will help in password crackdown efforts apart from driving stable average revenue per user gains. Still, the consensus for 14 million-plus user additions in 2023 could be high, but 12 million should be achievable.
Needham analyst Laura Martin maintained the estimates of Q4 revenue of $7.78B (up 1% y/y), Adj EBITDA of $381.6mm(down 52% y/y), Operating Income of $146.6mm (down 77% y/y), Net Income of $163mm (down 73% y/y), and GAAP EPS of $0.36 (down 73% y/y), but lowered the estimate to FY23’s revenue of $33.4B (up 6% y/y and 7% below previous estimate), Adj EBITDA of $6.5B (up 6% y/y and 15% below previous estimate), and GAAP EPS of $9.31 (down 9% y/y and 20% below previous estimate).
JPMorgan analyst Doug Anmuth reiterated it as overweight and offered the price target of $330, he remained bullish on the company’s ability to reaccelerate revenue, expand operating margins & grow FCF in 2023, and estimated that the ad-supported plan may bring in 250K users in Q4 and the company can add 4.75 million net new subscribers in Q4.
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