Netflix gained almost 6 million subscribers in the second quarter of 2023.
San Francisco:
Shares of Netflix tumbled more than 8% on Thursday after the video streaming pioneer’s meager revenue increase raised concerns about a longer path to growth for its new initiatives.
The company gained nearly 6 million subscribers in the second quarter — nearly three times more than Wall Street’s expectations — thanks to a crackdown on password sharing and the introduction of a cheaper subscription tier bundled with ads.
However, quarterly revenue growth and forecasts fell short of estimates, leading co-Chief Executive Officer Greg Peters to warn that it would take “several quarters” for these efforts to bear fruit.
“Netflix needs to squeeze as much juice out of different avenues as possible,” said Hargreaves Lansdown analyst Sophie Lund-Yates, adding that the market is “a long way from knowing” whether its acclaimed ad layer could become the new cash cow.
The company is battling rivals Disney+ and Amazon’s Prime Video in an industry that is showing signs of saturation in the United States. Many of the company’s new signups are in countries where it has lower prices.
Netflix shares were heading for their worst day in 2023 and were also on track to lose nearly $20 billion in market value. Trading volumes in the stock, which is up 48% year-to-date, were also the highest in two months.
“Some people are using the result as an excuse to take some profit,” said Pivotal Research Group analyst Jeffrey Wlodarczak.
However, analysts remained generally bullish on the stock, with at least 26 of them raising their price targets in the hope that revenue growth would accelerate in the second half of 2023 on the back of the new monetization initiatives.
They also said the ongoing Hollywood strike may not reach Netflix’s content list until 2024 and could give the company an edge over its peers as it has a solid lineup of shows.
The company also has a large international presence, giving it access to a wide variety of non-US shows and shielding it from the strike. The non-English titles such as “Physical 100”, “The Glory” and “Alice in Borderland” are also gaining popularity.
“Every other streamer is now raising prices, while Netflix is now extremely competitive with its level of advertising. It lays out all the building blocks for future revenue growth,” said PP Foresight analyst Paolo Pescatore.
He added that the company would also benefit from the move to remove the lowest ad-level plan in core markets, which should help support declining average revenue per user.
Netflix on Wednesday raised its free cash flow forecast for 2023 to at least $5 billion, from a previous estimate of about $3.5 billion due to the strike.
The company’s median price target now stands at $467.50, or about 2% lower than its last closing price. Netflix has a 12-month price-to-earnings ratio of 36.16, well above Disney’s 18.12 and an industry average of 15.47.
(Except for the headline, this story has not been edited by DailyExpertNews staff and is being published from a syndicated feed.)
