On Friday, Benchmark reiterated its Sell rating on Netflix (NASDAQ:NFLX) stock, maintaining a $545.00 price target. The firm noted that Netflix's current operating performance is surpassing expectations, driven by the benefits of paid sharing and robust content offerings.
Despite the positive performance, the analyst pointed out that advertising contributions are still in the early stages as the company works to monetize its growing ad inventory.
Netflix recently reported a substantial gain of 8 million global subscribers in the second quarter of 2024, surpassing both Benchmark's forecast of 6.3 million and aligning with market expectations. The streaming giant's global installed base has now reached 277 million.
Revenue for the company climbed 16.8% to $9.559 billion, slightly ahead of Benchmark's projections. Operating profit reached $2.603 billion, yielding a 27.2% margin, which was also higher than expected, while diluted earnings per share (EPS) came in at $4.88.
The company's stock experienced a downturn following the earnings report, which may be attributed to signals of slowing revenue growth and expectations for a decrease in member growth in the third quarter of 2024, compared to the same period in 2023 and the recently concluded quarter. Benchmark has adjusted its third-quarter member growth estimate from 5.8 million to 5 million.
Revenue growth for the third quarter is anticipated by management to be 13.9%, reaching $9.727 billion, which is slightly below Benchmark's previous estimate of 15.3%. However, operating profit is expected to be higher at $2.730 billion with a 28.1% margin, compared to the earlier estimate of $2.514 billion and a 25.5% margin.
Netflix's diluted EPS forecast for the third quarter stands at $5.10, exceeding Benchmark's earlier estimate of $4.93. Additionally, the firm has increased its operating margin expectation for 2024 to 26% from 25%.
In other recent news, Netflix, the streaming giant, has been in the spotlight following its second-quarter performance. The company surpassed expectations, leading to an upward revision of its full-year revenue and operating income forecasts.
Netflix's success was marked by significant subscriber growth, prompting Loop Capital to maintain a Buy rating and a $750.00 price target for the company's stock. Rosenblatt Securities, Goldman Sachs, and Deutsche Bank also adjusted their price targets based on Netflix's strong performance.
Analysts from Loop Capital project approximately 5 million new subscribers in the third quarter and anticipate a potential price hike in either the Standard or ad-supported plans.
This strategic move is expected to enhance profitability and address concerns about stagnant average revenue per user trends. Despite a slower development of the advertising business, the firm believes the pressure on traditional media competitors could work in Netflix's favor.
In other recent developments, Netflix is eliminating its Basic plan in the United States and France, a move that is expected to boost revenue. On the other hand, Deutsche Bank raised its price target to $590 but maintained a Hold rating due to concerns about high valuation and potential deceleration in revenue and earnings growth. These recent developments provide valuable insights into Netflix's strategic decisions and potential for continued growth in the competitive streaming landscape.
InvestingPro Insights
As Netflix continues to surpass expectations with its operating performance and subscriber growth, it's important to consider various financial metrics that could provide a broader context for investors. According to real-time data from InvestingPro, Netflix boasts a robust market capitalization of $277.09 billion, underlining its significant presence in the entertainment industry. Furthermore, the company's P/E ratio stands at 43.06 for the last twelve months as of Q1 2024, indicating a high earnings multiple that investors may weigh against near-term earnings growth. The PEG ratio, which measures the stock's price relative to its earnings growth, is at an attractive 0.79, suggesting potential for future value.
InvestingPro Tips highlight Netflix's position as a prominent player in the Entertainment industry and its ability to sufficiently cover interest payments with its cash flows. With a total of 16 additional tips available on InvestingPro, investors can gain a more nuanced understanding of Netflix's financial health and market position. For those interested in exploring these insights, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. The company's strong return over the last three months, with a 15.85% price total return, and a significant price uptick over the last six months, with a 33.15% return, reflect a bullish trend that aligns with the positive operational performance mentioned in the article.
While Benchmark maintains a cautious outlook with its Sell rating, the additional context provided by InvestingPro's metrics and tips can help investors make more informed decisions about their Netflix holdings.
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