Netflix (NFLX) is scheduled to report results of its first fiscal quarter after market close on Tuesday, April 20. 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 certainly been super-charged by the COVID-19 pandemic.
Consensus forecasts currently call for about 6.45M paid subscriber additions, $7.13B in revenue and $2.97 in earnings per share for the March-end quarter.
In the fiscal fourth quarter, the company reported that average paid streaming memberships increased 23% year-over-year, while average revenue per membership was flat year over year both on a reported and foreign exchange neutral basis. Paid net adds of 8.51M "exceeded our 6.0M projection by 2.5M," Netflix noted.
For Q1, Netflix has forecast 6M paid net adds, versus 15.8M in the prior year quarter.
Netflix said in its last quarterly letter to investors: "As a reminder, the quarterly guidance we provide is our actual internal forecast at the time we report and we strive for accuracy. For Q1'21, we expect paid net adds of 6.0M vs. last Q1's 15.8M, which included the impact from the initial COVID-19 lockdowns. Since the start of 2018, our paid memberships have risen from 111M to 204M and our average revenue per membership has grown from $9.88 to $11.02, despite significant F/X headwinds."
In a note to investors on April 15, Rosenblatt analyst Mark Zgutowicz forecast Q1 global net adds for Netflix will fall about 450,000 short of the consensus estimate given what he sees as pricing headwinds, tough COVID comparison, and "modest weakness" from the loss of The Office in January. The analyst, who notes that his Q1 global net adds view is "roughly in-line" with the company's guidance for streaming paid net additions of 6.0M, reiterated his Neutral rating and $450 price target on Netflix shares.
2. 'MUTED' SENTIMENT: On April 13, JPMorgan analyst Doug Anmuth said he believed that investor sentiment around Netflix "remains muted" given COVID-related pull-forward driving year-over-year declines in net additions, along with increased competition and price increase concerns. The analyst maintained a 6.3M Q1 net add estimate, down 60% year-over-year, and just above management's guidance of 6.0M. Anmuth believes expectations are "no higher than guidance" based on his recent investor conversations. However, the analyst expects year-over-year net adds growth in the second half of 2021 and keeps an Overweight rating on Netflix with a $685 price target.
On April 9, Stifel analyst Scott Devitt highlighted "several factors" that he sees posing risk to Q1 results and the near-term outlook at Neftlix, including "price increase frictions," the digestion of pulled forward demand due to the pandemic and his read of app engagement data from Apptopia that suggests downside to Q1 guidance. His paid net add expectations are unchanged ahead of the company's report due on April 20, as he models the same 6.1M additions in Q1 and sees 3.2M paid additions in Q2, which Devitt noted was below the 4.3M Street consensus at the time. Devitt keeps a Hold rating and $550 price target on Netflix shares.
3. SONY DEAL: On April 8, The Wall Street Journal reported that Netflix signed a multi-year deal with Sony Pictures Entertainment (SNE) for domestic streaming rights to the studio's theatrical movies. Sony Pictures' 2022 movie line-up will start the arrangement and the streaming company will have a first-look option to pick up movies Sony is making or licensing specifically for streaming platforms, according to the report. Among the releases that will land on Netflix after their theatrical runs are future "Spider-Man" movies and other films based on Marvel characters on which Sony hold the rights, the report added.
Following the news, Benchmark analyst Matthew Harrigan said in a note to investors that terms of the deal are "believed to be at a record price and significant premium" to Sony's current deal with Lionsgate's (LGF.A) Starz. Following the news of the Sony films deal, which he called "hardly transformative," Harrigan maintained his Sell rating and $472 price target on Netflix shares.