One of Wall Street’s big hitters will step up to the earnings plate this week; Netflix (NFLX) will report 1Q21 results after the bell on Tuesday.
Ahead of the print, Raymond James’ Andrew Marok has been assessing the streaming king’s quarter and points out several items to keep an eye on in Netflix’ quarterly statement. While the analyst continues to view Netflix as a “long-term winner in the video-on-demand space,” there are certain near-term factors which could put a dampener on proceedings.
These include: “1) risk to the pace of subscriber additions post-pandemic; 2) the pandemic's effects on content releases into 2021; and 3) the impact of price releases on subscriber retention, especially given scaling of competing direct-to-consumer services, most of which are priced at a discount to Netflix.”
The outsized demand for Netflix’ service during the height of the pandemic helped the company achieve record new subscribers in the same period last year. Subscriber trends will be a key item to keep an eye on. Although Marok anticipates “slightly below consensus 1Q21 net subscriber additions,” it is the next quarter which could be more problematic on this front.
“We see increased risk to net additions estimates - perhaps less so for 1Q21 as reopening momentum was weighted toward the back of the quarter, but increasingly for 2Q21 (which spurs our below-consensus 2Q net adds outlook),” the analyst noted.
Regarding Marok’s second point, as the pandemic raged, Netflix also had to halt productions as stay-at-home mandates came into play. The analyst will be keen to glean insights “on release slates into 2Q and content plans as production paces have returned to close to normal.”
As for 3, in certain regions, including the U.S., U.K., and Ireland, Netflix recently raised prices. This, alongside the departure of the Office – Netflix’ most watched series - is a cause for concern. Marok sees “both of these factors as potential sources for increased churn in 1Q21.” Although the company has in the past dealt quite well with the churn around price hikes, the fact the new prices came almost at the same time as the reopenings “adds another degree of risk not present in a typical price raise cycle.”
To this end, the analyst rates NFLX stock a Market Perform (i.e. Hold) and has no fixed price target in mind for the shares. (To watch Marok’s track record, click here)
Marok, however, is amongst a minority on Wall Street; looking at the consensus breakdown, 22 Buys, 5 Holds and 4 Sells add up to a Moderate Buy consensus rating. The forecast is for 12-months gains of 11.5%, considering the average price target comes in at $618.41. (See NFLX stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.