Netflix (NFLX) is scheduled to report first-quarter results after market close on Tuesday, April 19. A video interview with Netflix executives, including co-CEO Reed Hastings and co-CEO & Chief Content Officer Ted Sarandos, will follow at 6:00 pm ET.
What to watch:
1. SUBSCRIBERS: Netflix's subscriber figures are a closely-watched measure of the company's growth trajectory, but one that has been complicated by the pandemic.
In the fourth quarter, the company reported global streaming paid net additions of 8.28M, adding that paid net adds totaled 18M for the full year 2021, versus 37M in 2020. The company noted it finished Q4 with 222M paid memberships.
For Q1, Netflix has forecast global streaming paid net additions of 2.5M, which it noted would be down from 4M in the year ago quarter. "Our guidance reflects a more back-end weighted content slate in Q1'22 (for example, Bridgerton S2 and our new original film The Adam Project will both be launching in March). In addition, while retention and engagement remain healthy, acquisition growth has not yet re-accelerated to pre-Covid levels. We think this may be due to several factors including the ongoing Covid overhang and macro-economic hardship in several parts of the world like LATAM," Netflix added in its last quarterly letter to investors.
On the day after the company's last earnings report, the stock was downgraded to Neutral or an equivalent rating at Monness Crespi, Truist, Morgan Stanley, Baird, Credit Suisse, Evercore ISI, Barclays, and KeyBanc, while also being downgraded to Underperform from Neutral at Macquarie and upgraded to Hold from Sell at Benchmark.
On March 9, Wedbush analyst Michael Pachter upgraded Netflix to Neutral from Underperform after the shares had reached the analyst's unchanged price target of $342. The share price decline reflects that Netflix investors have begun to appreciate that the company's "long-term prognosis is as a low growth, extremely profitable enterprise," Pachter told investors at the time. The analyst does not anticipate significant share price appreciation in the near-term, but says Netflix's first mover advantage and large subscriber base provides the company with a "nearly insurmountable competitive advantage over its streaming peers."
Recently, Deutsche Bank analyst Bryan Kraft maintained his Q1 global subscriber estimate, in line with Netflix's 2.5M guidance, though he believes net adds may be closer to 3.5M when not accounting for a 1M base adjustment for Russia. Kraft's analysis of Sensor Tower data shows mobile device app downloads to be nearly flat year-over-year and down 6% quarter-over-quarter, indicative of a continued decline in gross adds both annually and sequentially. This usually comes with a decrease in net adds, but given the "tumultuousness coming out of COVID and increasing competition, it is hard to predict how correlated net adds will be this quarter," Kraft told investors. He keeps a Hold rating on Netflix shares.
Consensus forecasts recently called for $7.93B in revenue and $2.90 in earnings per share for the March-end quarter, versus the company's forecast for Q1 EPS of $2.86 and Q1 revenue of $7.9B.
2. QUESTIONS AND ANSWERS: In a preview published this morning, Credit Suisse analyst Douglas Mitchelson said expectations are "reasonable" heading into Q1, but investor interest in Netflix remains muted. This is consistent with his view that while the risk/reward appears favorable, it is unlikely that Q1 results and the "all-important" Q2 guidance will be strong enough to revitalize the long-term bull thesis. While competing services had Q1 hits, their lack of global distribution still suggests little Q1 competitive impact on Netflix, contends Mitchelson, who has a Neutral rating and $450 price target on the shares.
In his own recent preview note, Barclays analyst Kannan Venkateshwar lowered the firm's price target on Netflix to $380 from $425 and kept an Equal Weight rating on the shares. Netflix's Q1 growth may not be very different from its weak guidance, Venkateshwar tells investors. The analyst says that based on the average predicted value across various short and long term models, Netflix appears to be on a path to 4M subscribers, better than company guidance, but still weak in the absolute for a Q1.
3. VIDEO GAMES: On March 2, Netflix announced that it has entered into a combination agreement to acquire Next Games. Under the terms of the agreement, Netflix will commence a tender offer to acquire all of the issued and outstanding shares of Next Games, whose shareholders will receive EUR 2.10 in cash per share for a total equity value of approximately EUR 65M. Founded in 2013 and led by Teemu Huuhtanen, Next Games creates and operates mobile games based on popular entertainment IP, such as "Stranger Things: Puzzle Tales," a story-driven puzzle role playing game inspired by one of Netflix's most watched series. The transaction is expected to close in Q2, subject to customary closing conditions.
On March 22, Netflix announced that three more mobile games are coming to Android and iOS devices this month, including "This is a True Story," "Shatter Remastered," and "Into the Dead 2: Unleashed."
On March 24, the company announced that Boss Fight Entertainment is joining Netflix. "Boss Fight's mission is to bring simple, beautiful, and fun game experiences to our players wherever they want to play. Netflix's commitment to offer ad-free games as part of members' subscriptions enables game developers like us to focus on creating delightful game play without worrying about monetization. We couldn't be more excited to join Netflix at this early stage as we continue doing what we love to do while helping to shape the future of games on Netflix together," said the founders of Boss Fight.
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