Netflix stock bounces back after a decline caused by Hollywood strikes. Analysts remain confident in the company's ability to overcome challenges and forecast future growth. Categories: Finance, Entertainment. Tags: Netflix, stock market, Hollywood,...
Troy D. Hanson
September 14, 2023
Netflix Inc.'s stock saw a slight increase in premarket trade on Thursday, bouncing back from a 5% drop the previous day. Benchmark, a leading investment research firm, expressed confidence in the streaming giant's ability to navigate the challenges posed by the ongoing Hollywood strikes.
"Netflix remains favorably positioned for scripted programming delivery despite the prolonged SAG and WGA strikes affecting its international production and previously released domestic content," analyst Matthew Harrigan stated in a client note.
Wednesday's decline came after the company's CFO acknowledged the negative impact of the strikes on Netflix's business and provided cautious guidance on operating margins. Neither SAG-AFRA, which initiated the strike on July 14, nor the Writers Guild of America, which commenced their strike on May 2, are currently engaged in discussions with the Alliance of Motion Picture and Television Producers, which includes Netflix among its members.
Furthermore, concerns were raised by investors regarding the operating margins mentioned by CFO Neumann—forecasted to be between 18% and 20%—with the consensus currently standing at around 19.8%. Neumann did express optimism for future margin growth as Netflix ramps up its revenue generation in 2024 and beyond.
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Despite some lingering skepticism, Benchmark's Harrigan maintained his sell rating on Netflix stock but highlighted a few positive factors, including a relatively low number of cancellations resulting from the company's crackdown on password sharing.
Netflix's Advertising Progress and Potential Impact
In a recent note to clients, it was highlighted that Netflix is making significant advertising progress following its well-received upfront market presentation and collaboration with Microsoft on its ad-tech stack. However, due to commissions and technology costs, the contribution margin for ad-supported video on demand (AVOD) is lower compared to other modifications like password sharing.
It is worth noting that all studios and streaming platforms will be impacted by an eventual strike resolution, which could result in revised compensation for actors and writers in the streaming industry. Netflix, as a leading player in this space, may be particularly affected since it has been at the forefront of the absence of residuals for streaming in comparison to linear television.
Despite these potential challenges, Michael Harrigan, an analyst, is maintaining his target price of $293 for Netflix stock. As of Wednesday's closing price at $412.24, this suggests a positive outlook.
Furthermore, Neumann's comments have led to a revision in average revenue-per-user growth projections by analyst Jeffrey Wlodarczak. The projection has been reduced from 4% to 2%, consequently lowering Netflix's fourth-quarter revenue forecast to $8.73 billion. However, analysts are still predicting average fourth-quarter revenue for Netflix to reach $8.85 billion.
Wlodarczak maintains a buy rating and a price target of $600 for Netflix shares, indicating continued confidence in the company's performance.
Year to date, Netflix stock has experienced a notable 40% increase, outperforming the S&P 500's gain of 16.4%. These figures demonstrate Netflix's resilience and potential for growth in the market.