Netflix earnings: Will ads come to the rescue?
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Netflix (NASDAQ:NFLX) is set to deliver its fourth-quarter earnings after the closing bell Thursday, kicking off earnings season for big Communication Services names - and along with the recent focus on its subscriber-growth worries, this quarter's emphasis will be on new revenue approaches, and details coming from the company's launch of its ad-supported service tier.
Last time around, the third-quarter earnings brought some much-needed relief to Netflix investors after a pair of early-2022 reports showed subscriber growth stagnating and then even reversing.
The company had led into third-quarter results saying its crisis was over and the business was turning around - and after easily beating operational and subscriber guidance, the stock turned higher again. (That wasn't enough to salvage a terrible 2022, where the stock slid 51% for the 12 months.)
For this report, consensus expectations are for earnings per share of $0.54, on revenues expected to tick up just 2% to $7.85B.
The company itself said fourth-quarter global streaming paid net additions would come to 4.5M, bringing its worldwide subscriber count to an all-time high 227.59M. Wall Street is a bit more cautious, expecting 4.1M net additions.
But the hot news will be any facts and figures that will be offered around the launch of Netflix's ad-supported service tier after years of resisting advertising. The cheaper plan launched Nov. 3, and shortly afterward co-CEO Reed Hastings said he regretted not rolling it out sooner.
If recent history is any guide, Netflix (NFLX) will be conservative in characterizing what's happened so far (it's said it's new to the ad space, and that the approach is "crawl, walk, run"). That conservatism might be appropriate after some early-weeks reports suggested the company was refunding advertisers for some missed viewership targets.
This is also the first quarter in which the company will stop offering guidance for its paid membership. "We are increasingly focused on revenue as our primary top-line metric," Netflix said last quarter, noting it's particularly important in 2023 with the new revenue streams of ads and monetizing shared accounts. It will offer guidance for revenue, operating income, operating margin, net income and earnings per share.
As for that Q4 subscriber forecast, Netflix is incrementally more likely to surpass it with some help from its late-2022 hit Wednesday.
And regardless of what news comes out of the ad launch, Wedbush analyst Michael Pachter figures it's a boon to the service. âIts ad tier should limit churn going forward, while its content strategy appears to be smoothing out with greater discernment and a higher mix of original titles,â Pachter said. He has a price target of $400, implying 23% upside.
UBS analyst John Hodulik expects subscribers in line with management expectations for 4.5M net adds, and says "With peers prioritizing profits over volumes, we see Netflix as the main beneficiary and expect sub momentum to build in '23." New growth initiatives will take time to scale, though, he adds.
Seeking Alpha contributor Daniel Jones notes analysts are more upbeat about this quarter than a few last years, in part thanks to the weakening of the U.S. dollar. He urges watching for year-over-year changes to EBITDA and operating cash flow, which he considers instrumental to which way the shares move.