Netflix Inc (NASDAQ:NFLX) posted strong fourth-quarter results laying the foundations to drive “operating leverage and a return to double-digit growth,” according to US bank Jefferies.
Investors feared the streaming giant might have “cannibalised” viewers with its cheaper ad-based service and was struggling against “deeper-pocketed rivals”, added Michael Hewson, chief market analyst at CMC Markets.
Yet, the company’s quarterly revenue (US$7.85bln) and subscriber count (230.75mln) beat guidance previously set.
“With such a big increase in subscriber numbers it's perhaps surprising that revenues weren’t higher,” said Hewson, who believes the new ad tier might be to blame.
"Netflix misses EPS estimates by a fair bit (12 cents vs the forecasted 45 cents) … that said, each company will have key metric markets they will be looking out for —new subscribers in the case of Netflix,” said Daniela Hawthorn, senior market analyst at Capital.com.
“This may still cause a bit of a boost to share prices as an immediate reaction,” Hawthorn added.
“Last night’s results saw the share price rebound strongly in after-hours trading, with the big test whether it can sustain that move when US trading reopens,” added Hewson.
Netflix’s share price was US$315.78 when US trading closed yesterday, but overnight markets were pencilling in a 7% rise to US$338.25 when US markets open today.
Jefferies believes Netflix will see “an acceleration of revenue growth and profitability in the second half of 202323 and 2024, which we believe will start more aggressively in the second quarter.”
The introduction of a password sharing clamp down and seasonality shifts in the second quarter meanwhile are behind Jefferies's full-year forecast of revenues and underlying profits increasing by 2% and 7% respectively in 2023.
Jefferies reiterated its “buy” rating and a share price target of US$400.