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- Netflix is set to report third-quarter earnings Tuesday afternoon, offering investors the latest look at how its subscriber growth has held up after soaring through the start of the pandemic.
- While most of Wall Street has high hopes for the company, many analysts fear increased competition and the release of a controversial movie could fuel short-term turbulence.
- Here's what four major banks expect when the streaming titan releases its third-quarter report.
- Watch Netflix trade live here.
Netflix is slated to report third-quarter earnings Tuesday afternoon, and despite some near-term concerns, Wall Street remains largely bullish on the streaming platform.
The third quarter saw obstacles emerge from economic reopenings, controversy around French drama title "Cuties," and new competition in the streaming sector. The first half of 2020 boosted the streaming giant, as stay-at-home orders fueled a surge of new subscribers and engagement.
Wall Street is now curious to see how it handles the slowed pace of economic recovery and a fading of the first-half rally.
Here's what four major banks expect from the streaming giant's third-quarter report, from subscriber growth trends to future price changes.
Bank of America: 'Cautious stance on 3Q subscriber growth'Analysts led by Nat Schindler see a handful of uncertainties risking a quarterly stumble in subscriber growth. The release of "Cuties" spurred record churn signals from firms tracking Netflix accounts. Increased competition from Disney Plus and Peacock presented hurdles, as did the return of live sports events. Reopening pressures in the third quarter may have also stifled growth, the team said.
"While we believe Netflix conservatively assumed some normalization of churn, we believe some events such as the 'Cuties' backlash were unforeseen at the point they issued guidance," the analysts wrote Friday.
Still, Bank of America expects the streaming giant to add 2.5 million new subscribers, roughly in line with its previous guidance. The "cautious stance" on subscriber growth represents temporary turbulence, and Netflix's long-term opportunity is "stronger than ever," the analysts said. The subscriber boost through the first half of 2020 has solidified as a permanent benefit, and healthy cash flow sets the company up for healthy growth as the economy recovers, they added.
RBC Capital Markets: 'Continue to benefit from the limited entertainment options'Analysts at RBC Capital Markets largely expect Netflix's revenue and earnings to land slightly below Wall Street expectations but still hold a bullish outlook on its shares. A survey recently conducted by RBC shows consumers around the world are willing to pay for multiple streaming services, cutting away at competition concerns.
Netflix also raised prices in Australia and Canada through the quarter, and reports suggest the company is doing away with free trials in the US. With subscriber growth still set to hit Netflix's 2.5 million target, the higher prices should equate to stronger revenues.
Lasting movie-theater closures also play into the streaming company's hand, RBC said. AMC recently warned investors it may run out of cash before the end of the year, and Regal closed all of its US locations to shore up capital.
"We think Netflix should continue to benefit from limited entertainment options available for consumers in a pandemic," RBC's analysts said.
Morgan Stanley: 'Netflix's competitive moat is perhaps deeper than ever'The bank raised its price target for Netflix shares to $630 from $600 in its Friday pre-earnings note. Analysts led by Benjamin Swinburne echoed praises of Netflix's pricing power and, like their peers, expect on-target subscriber growth of 2.5 million additions. The team also expects Netflix to be free-cash-flow positive for the first time since it started building out its streaming service, hitting a key revenue goal as the coronavirus slams other industries.
While the team has some concerns around heightened churn rates, they still view strong engagement levels as an offsetting factor. Netflix's lead in the streaming industry also placed it in an advantageous position once the pandemic began, Morgan Stanley said.
"We believe Netflix's competitive moat is perhaps deeper than ever today," they said, adding "production delays due to COVID have likely impacted its competitors more significantly."
JPMorgan: 'Download recovery should persist in 4Q'Analysts at JPMorgan are markedly more optimistic regarding Netflix's third-quarter subscriber growth. While peer firms expect the streaming service to add 2.5 million users, JPMorgan sees it taking on 5.1 million, citing stronger content and stabilizing daily-active-user growth in September.
The favorable trends are likely to spill into the current quarter and set up Netflix for blockbuster 2020 figures, the team added.
"With September's improvements, more hit content, and traditionally favorable seasonality, daily active user growth and download recovery should persist in 4Q," they wrote in a note to clients. The team projects 7.25 million new subscribers in the current quarter.
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