BofA: see long term durable growth despite short term tough comps in Netflix

Analysts from BofA are above the Street with 3M paid sub adds, $8bn revenue and EPS at $2.94 on higher UCAN and APAC net adds and streaming revenues. The all-important 2Q guidance will be driven by the return of highly-viewed and -rated Netflix TV shows like Stranger Things season 4 and lingering impact of the 1Q launch of Netflix's most popular TV show Bridgerton.

Analysts from BofA also concern that the Street is expecting too much from these in the seasonally weak 2Q with Street estimates of 2.6M being higher than 1Q guidance. However, the reason being, why Netflix's 1Q guidance was so weak, are still unknown to public. It is hard to say whether Netflix can return to its pre-Covid growth trajectory or not and will be listening for commentary on changes in seasonality.

Third party data checks show that mobile app downloads and DAUs continue to be under pressure as covid restriction easing globally.

According to Sensor Tower, worldwide Netflix mobile app downloads were flat Y/Y but down 6% from 4Q21 to 1Q22. Worldwide DAUs were flat in 1Q on tough comps and as restrictions are eased in more regions.

Chum data is mixed as SimilarWeb data shows worldwide cancelation traffic to Netflix in 1Q22 was up 50bps compared to 4Q21 driven by likely by price increases in UCAN. Though worldwide trial traffic to Netflix in 1Q22 was down 188bps compared to 4Q21, pricing traffic to Netflix in 1Q22 was up 393bps compared to 4Q21 and 6.0% Y/Y, an encouraging counter to the prior two data points.

In 1Q22 Netflix pricing tracker has indicated price hikes in five countries other than the US including the UK. When compared to Jan 14, we note FX-adjusted developed market ARPU (equal weighted basket) has decreased 3.6% to $13.57 and overall emerging market basket has decreased 1.6% to $9.78, so the FX impact continues to be a problem.

Analysts from BofA believe that Netflix will continue to see long term durable growthdespite short term tough comps and increasing competition. Netflix's ability to grow as its global content investmentstrengthens its value proposition is still within expectation. Maintain Buy rating.