Key points:
- Netflix will report earnings after the close Tuesday
- The company may face FX headwinds
- Netflix shares are up 2%
Netflix (NASDAQ: NFLX) is set to report earnings after the close Tuesday, October 18, and analysts are generally neutral ahead of the release.
The company's shares have risen over 2% early on Tuesday, although the stock is down 59.5% in 2022 and over 61% in the last 12 months.
The company will have been impacted by inflation and FX headwinds during the quarter. In the second quarter, Netflix told investors it performed better than expected on membership growth, but foreign exchange was worse than expected due to a stronger US dollar.
Those results were reported in July, and since then, the dollar has continued to strengthen, meaning FX headwinds may have weighed on Netflix's latest quarter. Elsewhere, The Wall Street Journal reported on Monday that Netflix users were coming to the streaming service less often, and the company is seeking ways to get subscribers to return.
Also Read: How to Buy Netflix Shares
Meanwhile, assessing the company's upcoming report, KeyBanc analyst Justin Patterson said Netflix's third-quarter net adds will likely be at least in line at 1 million based on better-than-expected content. The analyst also believes fourth quarter total net adds could be above based on the company's recently announced ad-supported service, which is broader than expected.
Echoing what we mentioned above, Patterson, who has a Sector Weight rating on Netflix, told investors in a memo that positive revisions are unlikely in the near-term based on foreign exchange and slowing ad-free subscription growth.
Credit Suisse analyst Douglas Mitchelson, who has a Neutral rating on Netflix, told investors in a note that app downloads were inconclusive this quarter, although investors he has spoken to expect a modest third-quarter miss compared to the 1 million Credit Suisse and Street estimate. However, Mitchelson believes for the fourth quarter, the ad-tier launch in November suggests Street estimates could be conservative.
Finally, Steven Cahall, an analyst at Wells Fargo, left his third-quarter net adds unchanged at 1.2 million, although he believes data suggests engagement did improve for the streaming giant in the third quarter, while the fourth-quarter slate looks promising.
The analyst added that the fourth-quarter consensus of +4.5 million is “punchy” based on the recent past. The Wells Fargo analyst has an Equal Weight rating and a $300 price target on Netflix shares.
