By Michael Elkins
Phillip Capital downgraded Netflix (NASDAQ:NFLX) to Accumulate but raised the price target on the streaming platform to $388.00 (from $346.00) as Phillip accounts for recent share price performance, and factors in an expansion in margins for FY23e and FY24e on the back of increasing operating leverage.
The company’s 4Q22 revenue and earnings results were in line with Phillip Capital’s estimates. However, headline earnings were dampened by a $462 million unrealized loss on its $5 billion debt remeasurement. Netflix generated $1.6B in FCF for FY22, compared with -$159M in FY21. Content spend also moderated in FY22, down about $900M YoY, with the company building operating leverage from more disciplined content spend.
Netflix looks to have worked through most of its subscriber challenges from 1H22 as the company reported 7.7M membership additions for 4Q22, 3.2M more than it guided, increasing for a second straight quarter. Membership additions were supported by a strong schedule of content released in 4Q22, and positive incremental benefits from the new ad-supported plan.
NFLX guided $8.2B in revenue for 1Q23e, representing a 4% YoY growth, or 8% YoY in constant currency. The company expects revenue growth to be supported by modest YoY growth in paid memberships and ARM.
The company also expects to roll out its paid sharing program towards the later parts of 1Q23e, giving users the ability to pay slightly extra to share accounts outside a single household. Near-term engagement is expected to be negatively impacted from this new program, but to recover gradually over time as was the case when the program was tested in LATAM.
Shares of NFLX are down 0.45% in premarket trading on Thursday.