Stranger Things boom may not drive Netflix subscriber adds just yet, KeyBanc warns
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The first part of the fourth season of Stranger Things was released on Netflix (NASDAQ:NFLX) this past weekend and while the heavily anticipated season may have set a viewing record, investment firm KeyBanc Capital Markets warned that it's too early to know if it actually helped grow subscribers.
"Based on country rank and broader data (app, search queries), we believe it is too early to conclude paid net adds could outperform our/Street estimates for [second-quarter] losses of [2 million subscribers]," analyst Justin Patterson wrote in a note to clients, adding that catalysts such as progress on advertising and improved free cash flow are not likely to happen until the second-half of 2023.
Netflix (NFLX) shares were fractionally lower to $197.25 in premarket trading on Wednesday.
On Tuesday, it was reported that the fourth season of the 1980s-era show logged 286.79 million hours viewed. The first seven episodes of the nine-episode season were released, with many of them coming in at a runtime of well over 60 minutes.
In addition, Patterson noted that Netflix (NFLX) shows tend to "typically peak" in the second week, it's likely that the fourth season of Stranger Things is "well on track" towards regaining its status as the service's most popular show around the world.
Nonetheless, despite the record performance, it's too early to tell whether it has led to a "significant upside" in paid net subscriber additions, as international top 10 iOS rankings only improved "modestly" and are still well below historic levels. In the U.S., there was a sharp increase in the Netflix (NFLX) app on iOS, but it only returned to a "normal range" after what were seen as "very weak levels" in April and May, Patterson explained.
Separately, search queries for Netflix (NFLX) both worldwide and domestic are trending lower year-over-year despite easy comparisons.
Taken together, it's possible that Netflix (NFLX) misses second-quarter estimates for a loss of 2 million subscribers, despite the release of Stranger Things, Patterson concluded.
Late last month, investment firm Citi said an advertising-supported subscription tier is likely to reinvigorate Netflix's (NFLX) subscriber growth and narrow the gap between free cash flow and net income.