Netflix (NFLX) is set to report second quarter earnings after the bell on Wednesday as the platform continues efforts to trim costs and boost engagement in an increasingly competitive streaming landscape.
Investors have turned bullish on the stock on the heels of encouraging data surrounding the streaming giant's ad-supported tier and password sharing crackdown, coupled with optimistic reports on its position to weather potentially long-lasting Hollywood strikes.
Here's what Wall Street expects, according to Bloomberg estimates:
Revenue: $8.30 billion versus $7.97 billion in Q2 2022
Adjusted earnings per share (EPS): $2.90 versus $3.20 in Q2 2022
Subscribers: 2.1 million net additions versus loss of 970,000 users in Q2 2022
Netflix shares have climbed more than 40% over the past three months and roughly 60% year-to-date.
The streaming giant rolled out its controversial password sharing crackdown in the US in late May, which analysts say should help lift profitability metrics like average revenue per user (ARPU).
"Any early evidence of success in Netflix's paid sharing rollout will be the key focus in its Q2 earnings," wrote Tim Nollen, senior media tech analyst at Macquarie. "Based on the stock's Q2 outperformance and several recent sell-side estimate and target price increases, the bar is already set pretty high for Q2 expectations."
Recent data from analytics platform Antenna showed US sign-ups for the streaming service jumped by the most in at least four and a half years after the implementation of the password crackdown.
Wall Street has rewarded the streaming giant with a slew of upgrades and price target increases in recent months. The stock currently has 29 Buy ratings, compared to 25 Holds and just 3 Sells, according to Bloomberg data.
"Netflix remains on Wedbush's Best Ideas List, given our view that the company can generate significantly more free cash flow than its guidance suggests," Wedbush analysts Alicia Reese and Michael Pachter wrote in a note last week. The duo has an Outperform rating on the stock with a price target of $475 a share.
"We think Netflix has reached the right formula with its global content to balance costs and generate increasing profitability. At the same time, its ad-supported tier and password sharing crackdown should further boost cash generation," the analysts wrote.
Beyond those revenue initiatives, which Wedbush said could provide meaningful upside to estimates and guidance, Netflix will likely benefit from a weakening US dollar.
"In Q2, FX turned into a tailwind for NFLX's print, mainly driven by a weakening dollar against the euro and British pound," Wells Fargo analyst Steve Cahall wrote ahead of the report.
The analyst, who maintains an Overweight rating on the stock and $500 price target, raised his revenue estimates by $40 million "to account for the greater-than-expected benefit." He now anticipates revenue to come in above consensus at $8.77 billion.
Netflix best-positioned amid Hollywood strikes
Executives will likely address the double strike in Hollywood as actors join writers on the picket lines.
SAG-AFTRA — the union that represents approximately 160,000 actors, announcers, recording artists, and other media professionals around the world — announced a strike last week after failing to negotiate a deal with the Alliance of Motion Picture and Television Producers (AMPTP), which bargains on behalf of studios.
According to a new report by Moody's released on Monday, Netflix is among the best-positioned companies in the event of a prolonged work stoppage, along with Comcast (CMCSA), Fox (FOXA), Sony Group (SONY), Amazon (AMZN), and Apple (AAPL).
"Major studios, network owners and streamers that are well-diversified by business, content genre (news and sports) or by geographic production and library, and have relatively strong balance sheets are least at risk," the report said.
Wedbush's Pachter echoed this view points in a recent interview with Yahoo Finance Live, emphasizing Netflix's ability to pivot amid the strikes.
"Netflix would love this to drag on for five more years," he quipped, adding the studio will "not be the first" to cave to demands given its strong presence overseas, broad breadth of content, and profitable balance sheet.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com
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