Netflix’s Q2 Earnings: Analysts Expect Windfall From Password Crackdown

(CTN News) – Netflix’s decision to begin monetizing password-sharing users – after years of tacitly allowing the practice – could help the streamer meet Q2 2023 earnings projections.

This company will report second-quarter earnings after the market closes on Wednesday (July 19). A key question investors will ask is whether is prepared to weather the double whammy of SAG-AFTRA and WGA strikes.

As co-CEO Ted Sarandos told analysts in April, “We do have a pretty robust slate of releases to last us for a long time” in the event of strikes.

In the short term, though, the Street is more interested in what crackdown on illicit password sharing will yield. Earlier this month, Netflix notified customers in the U.S. and other countries that users living outside their households would have to be added as an “extra member” (or pay their own subscription fee).

“Following positive results from paid sharing,” UBS analyst John Hodulik wrote in a note on July 11. With the growth in the ad-tier mix and better targeting, we continue to believe that paid sharing will drive 5%+ uplifts in revenue.

Netflix has a major advantage as peers prioritize profits in streaming,

According to Hodulik. Analysts raised their price target on the stock from $390 to $525/share over the next 12 months.

Netflix’s Q3 guidance is expected to show faster revenue and operating income growth “boosted by accretion from paid sharing.”

According to analytics firm Antenna, Netflix’s password-sharing crackdown in June 2023 resulted in more than 3.5 million gross sign-ups in the U.S. alone – the largest month of sub acquisition recorded by the service (after recording 1.5 million gross additions in just two previous instances: May 2023 and December 2021).

A higher ratio of gross additions to cancels for Netflix in June reached its highest level since early in the COVID lockdowns in April 2020, according to Antenna.

As a whole, Wall Street analysts predict revenue of $8.29 billion (up 4% year over year) and earnings per share of $2.85 (down from $3.20 in Q2 2022), according to Refinitiv. Netflix is expected to net 1.769 million new subscribers in the second quarter, according to analysts.

According to analysts at Wedbush Securities, Alicia Reese and Michael Pachter, Netflix’s paid-sharing program could deliver “meaningful upside to our estimates” after observing “solid uptake” of the offer.

According to Wedbush analysts, Netflix’s “extra member” add-on, which costs $8/month in the U.S., adds users at almost no incremental cost.

According to UBS’s Hodulik, Netflix’s guidance for free cash flow in 2023 for $3.5 billion is conservative, especially after the company generated over $2 billion in free cash flow in the first quarter. FCF estimates for Netflix this year are $4.5 billion and $6.9 billion by 2024, according to Hodulik.

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