Netflix (NFLX) Ad Revenue Growth Key To Earnings Surprise

Based on how Netflix have been growing their subscriber over the last few quarters, the results have been better than expected, but Netflix management has indicated that they would stopped reporting subscriber and ARPU metrics from 2025 quarter.

Investors would be looking beyond the subscriber number and focus on the company efforts to expand its lower-priced plan with advertising and look for updates on new growth drivers.

Following sharp gains on crackdown on password sharing ebbed and viewer attention moved to summer sporting events including the Euro soccer tournament, Netflix is expected to add fewest number of subscribers in five quarters during April-June as sharp gains.

Netflix added an estimated 4.82 million subscribers in the second quarter, according to LSEG data. That would be the lowest additions since the first quarter of 2023 and about half the 9.3 million it added in the previous three months.

Netflix's efforts to sell a lower-priced ad-supported tier have yielded strong ad revenue growth. The company's ad revenue is expected to have more than doubled in the June quarter. Overall revenue likely rose 16.4 per cent to $9.53 billion, marking the fastest growth since the second quarter of 2021.

Though it is showing that Netflix’s US ad revenues per ad-supported viewer will fall from $70.44 this year to $59.67 by 2026, according to EMARKETER forecast, Netflix would still generate more ad revenues per viewer than any other streaming services.

Netflix will generate 53.6% more ad revenues per ad-supported viewer than Hulu this year, according to the US TV and Connected TV Ad Spending Forecasts H1 2024 report.

However, Hulu has six times more ad-supported viewers in the US than Netflix and its connected TV (CTV) ad revenues will be more than four times those of Netflix.

Now that Amazon has introduced ads to its Prime Video service, Apple TV+ has become the biggest streaming platform to hold out on ads.

Based on 36 Wall Street analysts offering 12 month price targets for Netflix in the last 3 months. The average price target is $673.89 with a high forecast of $800.00 and a low forecast of $450.00. The average price target represents a 4.08% change from the last price of $647.46.

If we looked at the revenue earnings forecast, we could be expecting Netflix to face some competition from Amazon and Apple as they are also rolling out similar plan.

But I would think Netflix would still be able to hold the number in the upcoming reporting quarter.

If we looked at Netflix on the long term, we could see that it has given investors more than 30% return year-to-date so far.

What I would be interested is Netflix efforts to readjust its subscriber plan, improve the ad revenue, not forgetting the cost and expenses that would come with it.

I am expecting Netflix to report a better-than-expected EPS.

If we looked at how Netflix have been trading, we could see that MACD and KDJ is showing downside trend. There have not been any signs that this is going to recover.

But if we observe how Netflix is trading, it is trading sideway, maybe there is a sign of consolidation while waiting for a breakout if earnings surprise appear.

Netflix would need to show an earning surprise and also positive guidance outlook in the midst of competition, considering that Netflix is not in the best position in terms of ad revenue per viewer, and also the library size.

I am expecting Netflix to trade pretty volatile if earnings came in just close.

Appreciate if you could share your thoughts in the comment section whether you think Netflix would provide us with an earning surprise.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.