Netflix (NFLX) shares moved higher Tuesday ahead of the online streaming group's first quarter earnings report after the close of trading, with investors focused on its near-term outlook for customer additions and content spending.
Subscriber growth, which soared during the 2020 pandemic, is also expected to take a hit from the uninterrupted surge in inflation. Headline CPI hit a fresh 40-year high last month, prompting a pull back on discretionary spending amid rising food and gasoline costs that was played out in a softer-than-expected reading for March retail sales.
Younger viewers are also spreading their entertainment budgets among a growing collection of streaming and on-demand services, according to Benchmark analyst Matthew Harrigan, a fact not helped by Netflix's ongoing price increase and crackdown on password sharing.
Analysts are looking for a bottom line of $2.89 per share from Netflix, with revenues in the region of $7.93 billion for the three months ending in March. The group also likely added 2.6 million new subscribers to its global service, a sharp decline from the 8.28 million tally over the final three months of last year.
Looking into the current quarter, new shows such as 'Stranger Things' and 'Ozark' could ignite subscriber growth, but forecasts remain welded to around 2.7 million, a figure that is unlikely to add to concerns that free cash flow generation can remain positive as content spending accelerates in order to take on rivals such as Disney+ (DIS) and HBO Max (WBD) .
"Following a boom through lockdown, the company missed its subscriber target in its last report in January and with users counting their pennies more than ever, their user growth may see another hit," said Adam Seagrave, UK sales trader at Saxo Markets.
"This week a report from media consultancy firm Kantar found 1.5million people in the UK have cancelled their streaming subscriptions in the first three months of the year with 38% more planning to cancel their services to save money going forward," he added. "The battle to prioritise spending continues for consumers as the cost of living grows with inflation hitting a 30-year high of 7% and oil/gas prices driving up energy and petrol bills."
Netflix shares were marked 3.8% higher in early afternoon trading Tuesday to change hands at $350.70 each, a move that would extend the stock's year-to-date slump to around 41.5%.
The stock is only down around 6.3%, however, from its late January levels, boosted in part by a investment from billionaire hedge fund manager Bill Ackman, who revealed that his Pershing Square Capital Management began buying shares in Netflix when they first slipped below $400 following its weaker-than-expected fourth quarter earnings report.
Ackman now owns around 3.1 million shares in the group, noting that he sees Netflix as "a primary beneficiary of the growth in streaming and the decline in linear TV driven by its superior customer experience, a vast and diverse amount of superb, constantly refreshed content, global improvements in bandwidth, and the proliferation and continuous improvement and convenience of devices on which one can watch."
Much of that praise, however, could also apply to Disney, which reported an astonishing 11.8 million subscribers to its platform over the three months ending in December -- more than 42% ahead of Netflix's tally -- while reiterating its view that Disney+ will grow to between 230 million and 260 million subscribers by the end of its 2024 financial year.
"Beyond Disney and hyperscale tech entrants, “old” media is showing better content execution as top scripted shows gravitate to streaming," Benchmark's Harrigan noted. "Paramount+ had its best ever viewership for its March 2022 Halo debut even as it targets 100M subscribers by 2024. Amazon’s (AMZN) immediate introduction of a James Bond competitive reality show off its MGM studio acquisition also suggests increased competition requiring continual new appealing Netflix content to maintain monthly churn stability."
"Comcast’s (CMCSA) Peacock and Discovery’s European assets now pose more competition that includes sports (and news), not to mention Amazon’s coming Thursday Night Football exclusivity on streaming," he added.
