Netflix Analyst Predicts Q3 Beat But Challenging 2025, Flags This As The Biggest Concern In Holding The Stock

$S&P 500(.SPX)$   companies' profit is set to grow for a fifth straight quarter, with the consensus modeling earnings growth of 4.1% for the third quarter. $Netflix(NFLX)$   is the first high-profile communication services company to report this earnings season, with its earnings scheduled to drop after the market close on Thursday.

Deepwater Asset Management's Gene Munster shared his expectations from the report in a post on X on Monday.

Netflix Stock Rally: Munster in a post said that Netflix shares have gained 142% since the Magnificent 7 became the tech investing standard in Jan. 2023, with the stock now perched near its all-time high. During the same period, the Magnificent 7 as a group rallied 244%, and excluding Nvidia, the group's gain has been a more modest 140%, he said.

Munster said that the rebound seen over the past year is a function of the company's success with the password crackdown that began in May 2023. The tech venture capitalist said this helped the company accelerate its growth from 4% in the March quarter of 2023 to 17% in the June quarter of 2024.

Consensus Call: Analysts, on average, expect Netflix to report earnings per share of $5.11 and revenue of $9.764 billion, according to Benzinga Pro data. This compares to the year-ago earnings of $3.73 per share and revenue of $8.54 billion.

The 14% growth forecast by the Street will prove slightly conservative despite the comps getting tougher, beginning in the September quarter, Munster said.

The tech analyst expects 2025 to be more challenging and therefore sees risk to the current consensus forecast of 12% growth. The assumption is based on the belief that the core business growth rate, excluding one-off benefits of password crackdown and the launch of a new offering, is in the 5-10% range.

Netflix isn't likely to offer any guidance for the next year when it reports this week, Munster said.

The tech analyst expects 2025 to be more challenging and therefore sees risk to the current consensus forecast of 12% growth. The assumption is based on the belief that the core business growth rate, excluding one-off benefits of password crackdown and the launch of a new offering, is in the 5-10% range.

Netflix isn't likely to offer any guidance for the next year when it reports this week, Munster said.

"My biggest concern to owning Netflix is opportunity cost," he said. "While generative AI will undoubtedly reduce production costs and increase margins, the company's exposure to the AI paradigm shift is modest when compared to $Alphabet(GOOG)$  , $Meta Platforms, Inc.(META)$  , $AAPL, $TSLA, $TSM, $MSFT," he added.

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