The Big Password Sharing Crackdown Will Bolster Netflix’s Q2 Results

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Netflix (NASDAQ:NFLX) is slated to report its Q2 2023 results on July 19th.  We estimate that Netflix’s revenue will come in at about $8.3 billion for the quarter, roughly in line with consensus estimates. This would mark year-over-year growth of roughly 4%, although it would be down from a growth rate of close to 9% in the same quarter last year. We estimate that earnings will stand at $2.84 per share, also roughly in line with the consensus. So what are some of the trends that are likely to drive Netflix results? See our interactive dashboard analysis on Netflix Earnings Preview for more details on how Netflix’s revenues and earnings are likely to trend for the quarter.

Netflix has stopped providing specific guidance on subscriber additions over the last two quarters, noting that it would be focusing more on boosting its monetization via its crackdown on password sharing as well as its ad-supported tier. In late May, the company began rolling out restrictions on password sharing in the U.S., requiring users to pay an additional monthly fee of $7.99 to share accounts with users outside of their households. The move appears to have gotten off to a strong start, with analytics firm Antenna estimating that Netflix saw more new subscriber adds in the U.S. between May 25 and May 28 versus any other four-day period since Antenna began monitoring this data in 2019. While cancellations also rose through this period, they were apparently lower compared to new sign-ups. This is likely to help overall subscriber numbers and revenue for Q2.

Moreover, Netflix’s ad-supported plan could also potentially start playing a bigger role in the context of Netflix’s overall business. The company upgraded the streaming resolutions on the plan to 1080p (up from 720p) while supporting two concurrent streams. Netflix has also indicated that the average revenue per membership for its ads plan has already exceeded its standard plan, accounting for both subscription fees and advertising revenues.

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Although we think that Netflix stock could move slightly higher if it beats earnings, we believe the stock is overvalued at current levels. The streaming wars are heating up and it’s likely that mounting competition could put a lid on the company’s overall growth. Moreover, concerns about the broader macroeconomic picture could also weigh on players such as Netflix who are dependent on growing consumer spending. We have a $363 per share price estimate for Netflix, which is about 15% below the current market price.  See our analysis Netflix ValuationExpensive or Cheap for more details on what’s driving our price estimate for Netflix. Also, check out the analysis of Netflix Revenue for more details on how Netflix revenues are trending.

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Returns Jul 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 NFLX Return -1% 49% 254%
 S&P 500 Return -1% 15% 96%
 Trefis Multi-Strategy Portfolio 0% 19% 282%

[1] Month-to-date and year-to-date as of 7/10/2023
[2] Cumulative total returns since the end of 2016

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