Netflix (NASDAQ:NFLX) recently announced restrictions on account sharing and according to analysts, the move is leading to accelerating growth. UBS analysts said checks on engagement, downloads, and search interest were all constructive for the newly launched paid sharing markets. As a result, analysts boosted their price target by 35% - from $390 to $525 - and reiterated a Buy rating.
"As a proxy for potential churn, we monitored Google search interest in "cancel Netflix", which saw less inflection in key markets launched in 2Q than what was observed in Canada/Spain in 1Q," analysts commented. "We continue to believe paid sharing will drive 5%+ uplift to revenue and see the roll-out as key to driving scale in advertising with the growth in the ad-tier mix and better targeting."
The analysts anticipate Netflix surpassing management's guidance. They now see 5% revenue growth and 4% operating income growth, versus 4% and 2% previously, respectively. Further, they continue to see accelerating growth in the 2nd-half. Their latest projections indicate the addition of 3.6 million and 6.5 million subscribers in the second and third quarters, respectively, versus their previously estimated 1.4 million and 3.6 million. Their estimated total subscriber additions for 2023 now stands at 18 million subscribers, compared to 12 million previously projected and 9 million in 2022.
They anticipate that the third-quarter guidance will indicate a faster growth in both revenue and operating income - projected at 14% and 28% according to estimates, compared to the street consensus of 9% and 20%. This growth will be further bolstered by the positive impact of paid sharing. Looking ahead to 2023, they expect a 9% increase in revenue and 11% growth in EBIT, which will further escalate to 15% and 30% or more respectively in 2024.
While UBS is highly bullish on the earnings print and future growth, Barclays analysts said today that Netflix may be already pricing in significant outperformance versus expectations.
Netflix will report its second-quarter earnings on Wednesday, July 19, 2023, after the close.