Netflix Q4 Report To Kick Off Year Of Streaming Scrutiny As Hollywood And Wall Street Try To See If The Math Works –

Netflix, after extricating itself from a horrendous string of failures in the first half of 2022, will face another test Thursday afternoon when it reports fourth-quarter financial results.

In addition to kicking off quarterly earnings season for media and entertainment companies, the report will usher in a year of increased scrutiny for the streaming business. After years of moving mountains (and billions of dollars) to try to compete with Netflix and let it run away from the streaming game, media companies are still very early in the process of getting to know consumers directly.


“Instead of being the new slice of bread, investors and executives have accepted that streaming is, in fact, not a good business — at least not compared to what it used to be,” MoffettNathanson analyst Robert Fishman told Clients this week. wrote in a note. “But that pre-streaming era is long gone and not coming back. If streaming is a niche business, so what? We’re now in the streaming era.”

Netflix is ​​forecasting that it will add 4.5 million subscribers in the quarter, reaching 227.6 million global subscribers. Even if it achieves that goal, the gain would be the smallest during the holiday quarter since 2014.

Programming milestones during the quarter, of course, including climate success Wednesday, have the potential to increase the number of users. But profits are clearly down from a year earlier, with analysts’ consensus calls for earnings of 44 cents per share, down from $1.33 in the 2021 quarter. Earnings have also been squeezed, with the Wall Street consensus of $7.8 billion, up from $7.7 billion a year ago.

A key theme in the company’s previous earnings report last October was that Netflix executives believed they were “on track to re-accelerate growth” after two disastrously sluggish quarters earlier in the year. Nevertheless, the cost of the material carries a lot of weight. Netflix has said it plans to keep content spending steady at $18 billion a year, though the flat is new for the go-go tech player.


Password sharing and advertising are two big issues that come up prominently in the company’s shareholder letter and video interviews with executives (Netflix’s version of a traditional conference call). After ignoring or even winking at the process of going through login credentials, the company has decided to stop letting subscribers do so at no extra charge. Co-CEO Ted Sarandos admitted at a conference hosted by UBS in December that the company can expect some complaints. “Consumers won’t like it right out of the gate,” he said, “but we need to show them why they should see value.” Many Wall Streeters see billions of dollars in new revenue if the company is able to manage this process effectively.

Advertising, similarly, is widely seen as a contributor to top-line growth despite a slower overall pace of subscription gains. Early signs of the development of the cheaper subscription tier with ads — which was introduced last November after a stunning reversal of the company’s long-standing stance against ads — are that it has little traction. Financially, the mid-quarter opening quarter in 12 regions was never expected to be a game changer, but many ears will be listening closely for early details of the effort.

Eric Sheridan, a veteran tech industry analyst with Goldman Sachs, described the launch of Netflix’s $7-a-month subscription business as “quiet” at best. In a note to clients, they questioned the extent of the upside of the effort. “We expect brands at large to adopt a host of advertisers’ offerings but its
The current framework (large minimum commitment, above industry prices and limited measurement) may limit opportunities for advertising dollars (wider reach of consumers, more measurement/attribution),” he wrote. “Its In addition, we are concerned that additional consumer offers could cause a ‘spin-down’ of consumers’ lowest-cost plans in any potential consumer downturn in the next 6-12 months.”

Sheridan considers Netflix a “show me stock” and rates the stock a “sell.” A contrasting view is that of Cowen & Co.’s John Blackledge, who sees a “huge advertising opportunity” as a catalyst for the shares. In a Cowen survey, Blackledge reported, one-third of digital ad buyers indicated they plan to buy space on Netflix.


Blackledge says Netflix still has potential for long-term subscriber growth, with profit margins growing to 80% to 85%.

An investment firm known for years as a Netflix bear, Wedbush Securities, has become a bull. In a report this week, the firm’s Alicia Reese and Michael Pector argued that the company is “well-positioned in this complex environment as streamers shift strategies, and value a highly profitable, slow-growth should be done as a company.”

Investors so far this year seem willing to watch the Netflix story. The company’s stock is up nearly 13% so far in 2023, closing at $326.33 today.

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