Image Source: Unsplash

Netflix (NFLX) is scheduled to report its fourth quarter results and business outlook on Tuesday, January 23. A video interview with Netflix executives, including co-CEOs Ted Sarandos and Greg Peters, will follow at 4:45 pm ET. What to watch:

SUBSCRIBERS: Netflix's membership trends are a closely-watched measure of the company's growth trajectory.

In the third quarter, the company reported global streaming paid net additions of 8.76M and said revenue growth was driven by a 9% year-over-year increase in average paid memberships, attributing this growth to the roll out of paid sharing, "strong, steady programming" and the ongoing expansion of streaming globally.

Netflix also said in its quarterly letter to investors that it forecasts Q4 revenue of $8.7B, up 11% year-over-year, and for the fourth quarter it expects paid net additions will be "similar" to Q3, plus or minus "a few million."

Netflix is projected to add 8.9M subscribers in the fourth quarter, according to the average of analyst estimates compiled by Bloomberg.

Consensus forecasts reported by Refinitiv recently called for $8.72B in revenue and $2.22 in earnings per share for the December-end quarter, versus the company's forecast for Q4 revenue of $8.7B and EPS of $2.15.

MOST ANALYSTS MORE BULLISH, THOUGH CITI DOWNGRADES: On the day after Netflix's last earnings report, Morgan Stanley upgraded shares to Overweight, as the firm said at the time that it believed Netflix will deliver the objectives it set out a year ago, accelerate revenue growth back to double digits and expand margins. Truist and KeyBanc also upgraded the stock to Buy-equivalent ratings following the last earnings report from the streaming entertainment giant.

More recently, on January 8, Citi downgraded Netflix to Neutral from Buy with an unchanged $500 price target. Across 2024 and 2025, the Street has lofty expectations for Netflix, but 2024 revenue estimates may be a tad too high, the analyst told investors. The firm further warned that 2025 content investments may exceed consensus estimates and also cautioned that investors should not rule-out potential acquisitions. At the time, Citi cut its FY24 EPS view to $14.65 from $15.47 and its FY25 view to $19.37 from $20.12.

Days after Citi's downgrade, Netflix President of Advertising Amy Reinhard said during the Variety Entertainment Summit that the company is seeing strong growth of its advertising-based plan, which recently surpassed 23M global monthly active users, or MAUs, Todd Spangler of Variety reported. "The thing we're really excited about is the engagement," Reinhard said, adding that more than 85% of users on ad-supported plans are streaming on the platform for two hours or more per month. The 23M-plus figure comes a couple months after Netflix said the tier had over 15M active users worldwide.

Subsequently, Citi noted that while speaking at CES Netflix had reported that its advertising tier recently reached 23M global monthly active users, up from 15M when the company last provided an update in October 2023. While initially slow out of the gate, the update suggests Netflix's ad-tier has seen an acceleration in adoption, said Citi. The firm estimates Netflix is now pacing toward 16M ad-tier subscribers per year. It is encouraged by the recent acceleration and sees scope for ad-tier subs to further accelerate. The firm, which continues to estimate Netflix will add 25M ad-tier subscribers in 2024, kept a Neutral rating on the shares.

Last week, BofA raised the firm's price target on Netflix to $585 from $525 and kept a Buy rating on the shares. Changes made over the last 18 months have led several media companies to re-evaluate their streaming aspirations and been a tacit acknowledgment that not all media companies will be able to achieve Netflix's global reach and scale in streaming, said the analyst, who added that "it is becoming increasingly clear that Netflix has won the 'streaming wars'." For Netflix, the availability to purchase third-party content will likely drive additional efficiencies with its content spend going forward, the analyst tells investors.

Meanwhile, Benchmark analyst Matthew Harrigan raised the firm's price target on Netflix to $425 from $350 and kept a Sell rating on the shares. The firm still views Netflix's long-term business characteristics as "more akin to other large media companies," especially as advertising gains prominence, rather than the higher-growth Nasdaq 100 technology companies, but the analyst said the target change was "almost entirely off (generously) conceding to our market linked valuation relative to the Nasdaq 100 rather than the S&P 500." The firm's revised $425 target reflects Netflix achieving near 430M global members in 2033 with a 32% operating margin, the analyst noted.

ADDING LIVE "SPORTS" WITH WWE DEAL: On January 23, WWE, part of TKO Group Holdings (TKO), and Netflix announced a long-term partnership that will bring WWE's flagship weekly program - Raw - to Netflix. Beginning in January 2025, Netflix will be the exclusive new home of Raw in the U.S., Canada, U.K. and Latin America, among other territories, with additional countries and regions to be added over time. Raw will air on Netflix in the U.S., Canada, Latin America and other international markets beginning in January 2025, after the expiration of the WWE's domestic deal with Comcast (CMCSA).

As part of the agreement, Netflix will also become the home for all WWE shows and specials outside the U.S. as available, inclusive of Raw and WWE's other weekly shows - SmackDown and NXT - as well as the company's Premium Live Events, including WrestleMania, SummerSlam and Royal Rumble.

In a regulatory filing, TKO Group provided more details on the partnership, disclosing that the agreement has an initial 10-year term for an aggregate rights fee in excess of $5B with an option for Netflix to extend for an additional 10 years and to opt out after the initial five years.

Wells Fargo opined that it thinks Netflix's involvement in the "landmark move" of TKO's Raw to streaming is part of the company's aim to accelerate advertising scale and grow revenues beyond paid sharing. The firm says Raw might add high single digits or low-teens to Netflix's U.S., Canada, Australia and New Zealand ad impressions in 2025. Wells guesses that ad-free Netflix subscribers will still get advertising during WWE's commercial breaks. This is hardly a "bet the farm" deal for Netflix, and tonight investors will get more color on how WWE fits in, the analyst added. Wells keeps an Overweight rating on Netflix with a $460 price target.

More By This Author:

Wall Street's Top 10 Stock Calls This Week - Saturday, Jan. 20
Wall Street's Top 10 Stock Calls This Week - Saturday, Jan. 13
Here's What Wall St. Experts Are Saying About These Banks Ahead Of Earnings