Netflix still faces growth hurdles despite 'Stranger' hit - Piper Sandler
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Stranger Things (NASDAQ:NFLX) is lighting up streaming screens all over, to the tune of streaming nearly 13,700 human-years worth of watch time in a single week. But a look from Piper Sandler at streaming time from the service's top shows suggests more needs to be done to fix Netflix's user growth.
The supernatural series is now Netflix's (NFLX) most popular English-language TV series, and No. 2 globally behind Squid Game, but analyst Thomas Champion says a dig into the streaming hours in Netflix's top 10 shows indicates a quarter-over-quarter decline of about 4% in Q2.
That might mean some ongoing "subdued" user growth for a "business in transition," Champion said: "It's possible COVID concealed an increasing crowded streaming market."
Stranger Things offered a boost, but the effect may already be wearing off, Champion said, and while English-language viewing hours look to be up by 8% sequentially, he expects the show's impact to wear off fairly quickly, falling short of peak Squid Game viewing hours (of nearly 1.3B).
Turning to ads, Champion relies on assumptions around incremental users, ad load/time spent and ad rates by region to "triangulate" an expected quarterly revenue opportunity from advertising of about $1.4B.
That gives reasons for optimism, but the opportunity will take time, he said, and the firm will be more constructive with "more confidence in (1) the cadence of (long-term) subs growth or (2) the ad-supported opportunity."
He's cut his price target to $210 from $293, a target that still implies 16% upside after Netflix's fall from stock-price heights this year.