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Is Netflix (NFLX) Stock a Buy or Sell Ahead of Earnings?

Ollie Martin - AskTraders News writer
Ollie Martin trader
Updated 14 Apr 2022

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Key points:

  • NFLX stock is down over 40% YTD, will we see any relinquishment in the share price after next weeks earnings?
  • Pivotal changes such as ad-driven accounts, and password-sharing restrictions could drive growth
  • Analysts appear worried about churn levels surrounding content dumps

Netflix (NASDAQ: NFLX) has recently gone through something akin to a ‘panic period’. After subscriber-induced anxiety pressured buyer caution, and rising competition has taken critical limelight off the dominant streamer in favor of popular alternatives; analysts have been meticulously picking apart the current Netflix moat in search of solid fundamental financials and a reliable long-term strategy. NFLX is down over 40% year-to-date, and with the company’s Q1 earnings approaching next week, we need to see a reassuring FY22 outlook for any uptick in the depressed share price.

Netflix has undergone various pivotal changes in order to claw back streams of sustainable revenue. Firstly, the discounted ad-driven account option opens up the streamer to a wider consumer base, as well as securing previous revenue from advertisers. Secondly, the company made a recent decision to crack down on the commonplace ‘password sharing’ culture of Netflix users, hoping again to swoop in on under-the-radar users. Price hikes are generally the most common method of subscription-based companies to ensure revenue growth,  yet the chance of ostracizing users also hangs in the balance. 

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Wedbush analyst Michael Pachter noted today that Netflix may be potentially nearing the top-end on UCAN subscribers, pulling “new levers to lower churn”. Although rising prices should lead to a ramp-up in content and further geographical growth, Pachter more importantly noted that subscriber growth will likely occur primarily in less developed regions at lower subscription prices. A key growing problem within the Netflix structure is churn; especially given the rise in content dumps, meaning consumers often swap from Netflix after viewing the desired series. 

Realistically, the only buttress for Netflix margins is the continued raising of subscription prices, but as competition increases, the company is likely to lose viewers to cheaper alternatives. It will be interesting to see subscriber numbers in next week’s earnings, and the ever important outlook from management. 

Ollie Martin - AskTraders News writer
Oliver is a financial writer and analyst specialising in the US stock market, with years of personal experience in understanding micro/macroeconomic structures, market trends and fundamental analysis.