When investors switch on to Netflix Inc (NASDAQ:NFLX, ETR:NFC) first-quarter earnings this Thursday, April 18, they should watch for strong subscriber growth for the past three months, but for this year to be lower than the last.
"We believe Netflix is the main beneficiary of industry rationalization", said UBS in a note to clients on Monday.
The bank raised its subscriber estimates to 7.8 million net additions on the back of continued tailwind from its crackdown on password sharing, which compares to 1.75 million net adds a year earlier, 4.3 million in Q4 last year and consensus forecasts of around 4.9 million.
The new 'paid sharing' regime should help to drive accelerating revenue growth despite weaker currency trends, the analysts said, forecasting 15% top-line growth versus 13% in Q4.
They expect management commentary on Q2 to suggest slower subscriber growth due to seasonality, with UBS's forecast being 4.2 million and the Wall Street consensus around 4.4 million, compared to 5.9 million a year ago.
For the whole of 2024, UBS now expects 22 million net adds, down from more than 29 million in 2023 while average revenue per member growth accelerates in the second half "as the company leans in on pricing".
The Swiss bank also sees "upside to margins & downside to content spend", forecasting margins of 24.2% this year and $6.9 billion of free cash flow, including $16.9 billion of content spend compared to $6.9 billion and $13.1 billion last year.
"We expect this to support ~$7B of buybacks in '24 or ~2.5% of market cap."
UBS reiterated its 'buy' rating, with a $685 share price target.
"With Pay TV pressure building, programmers have accelerated efforts to reach streaming profitability. The new playbook includes 1) price increases, 2) platform consolidation, 3) library curation (with related asset write-downs), 4) cuts to content spend (adj for strikerelated declines in '23) and 5) higher content licensing, all of which benefits Netflix in our view," analysts said in conclusion.