Netflix stock has stumbled ahead of the company's third-quarter earnings report in a sign that investors aren't confident in the video streamer's current prospects.
Los Gatos, Calif.-based Netflix plans to release its September-quarter results late Wednesday. Analysts polled by FactSet predict Netflix will earn $3.49 a share on sales of $8.54 billion in the third quarter. In the year-earlier period, it earned $3.10 a share on sales of $7.93 billion.
Analysts also expect the subscription video-on-demand service to add 5.3 million subscribers in the period. Netflix ended the second quarter with 238.4 million subscribers.
On the stock market today, Netflix stock rose 1.5% to 360.82, ending a four-day skid. NFLX stock began its recent downturn on Sept. 13, when it dived below its 50-day moving average line, a key support level. It dropped below its 200-day line on Oct. 11.
Netflix Stock Well Off 2023 High
Netflix stock reached its high point for the year of 485 on July 19 ahead of its second-quarter earnings report.
The key factor investors are watching now is Netflix subscriber additions from its crackdown on account sharing, Rosenblatt Securities analyst Barton Crockett said in a note to clients. Netflix missed the mark with its second-quarter subscribers adds and its guidance for the third-quarter was weak, Crockett said.
At the start of its account-sharing crackdown earlier this year, Netflix indicated that 100 million households were getting Netflix for free. That included 30 million freeloaders in the U.S. and Canada, he said.
Content Issues Are 'Red Flag'
Another "red flag" ahead of Netflix's earnings report is a weak content slate in the third quarter, Crockett said. Netflix had fewer shows than usual in the top 10 streaming titles as ranked by ratings service Nielsen, he said.
Plus, the ongoing actors strike in Hollywood has stalled new production and remains an overhang on Netflix stock. Crockett rates Netflix stock as neutral with a price target of 400.
Meanwhile, Netflix management has dialed back growth expectations for its advertising-supported streaming service. It also predicted a slower pace for margin expansion. Plus, a price increase has been delayed due to the actors strike.
"Investors may continue rotating away from the stock tactically at least till there is more visibility on top-line growth," Barclays analysts Kannan Venkateshwar and Ross Sandler said in a note to clients. They rate Netflix stock as equal weight with a price target of 375.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
