On Tuesday, Evercore ISI reiterated its Outperform rating on Netflix (NASDAQ:NFLX) shares, with a stable price target of $750.00. The firm's analysis suggests that the current market expectations for Netflix's third-quarter revenue growth and other financial metrics are reasonable.
According to Evercore ISI, the anticipated revenue increase of 14.3% year-over-year, along with an operating margin of 27.8% and earnings per share (EPS) of $5.11, align with typical seasonal patterns observed over the past three years.
The firm also agrees with the market's forecast of a 2% sequential revenue growth for the third quarter, which falls within the historical range of -0.6% to +4.3%. This outlook is supported by the expected average revenue per user (ARPU) boost from the discontinuation of Netflix's Basic plan in the U.S. and France, starting in July.
Furthermore, Evercore ISI considers the street's projection of 4.3 million global net subscriber additions for the third quarter to be conservative and realistic, given the quarter's flat viewership trends and competition from events like the Olympics.
Looking ahead to the fourth quarter, Evercore ISI finds the predicted 3% quarter-over-quarter revenue growth to be plausible, given past trends and the anticipated full-quarter impact from the Basic plan's sunset. The content lineup for the fourth quarter, which includes high-profile films, series, and live events, is expected to contribute positively to the company's performance.
Despite higher-than-usual buy-side expectations for the third quarter, with predictions of approximately 6.5 million net adds and revenue exceeding $9.85 billion, Evercore ISI notes that there is not a strong conviction for significant outperformance in Q3. The stock's performance has been moderate within the quarter, following a slight decline after the second-quarter results.
A critical point of interest for investors and analysts alike is the potential timing of a Netflix price increase. Evercore ISI believes a hike is likely within the next 3 to 9 months, although the exact timing remains uncertain. This topic is expected to be a focal point during the earnings call for further insights.
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