Netflix (NFLX) shares moved higher Tuesday as investors looked to the streaming media group’s third quarter earnings after the closing bell with an eye on the impact of its upcoming ad-supported service on subscriber and revenue growth.
For the three months ending in September, analysts expect Netflix to post a bottom line of $2.13 per share, down 33% from the same period last year when the South Korean-made hit “Squid Game” boosted its global subscriber base, on revenues of around $7.84 billion.
Globally, Netflix is likely to add around 1 million new subscribers to its streaming platform, following the loss of around 970,000 over the three months ending in June. Netflix also lost 200,000 subscribers over the first three months of the year thanks to a mix of rising prices, increasing competition and password sharing.
However, with the group’s November launch of an ad-supported service unveiled last week, and priced at $6.99 per month, investors will be looking for signs that Netflix has been able to arrest that slide — and boost overall revenues — amid a pullback in discretionary spending and the ongoing market share gains from rivals such as Amazon (AMZN) Disney (THIS) and Comcast (CMCSA) .
“We believe Netflix third quarter net adds are likely to come in at least in line at 1 million due to better than expected content,” said KeyBanc Capital Markets analyst Justin Patterson, who carries a ‘sector weight’ rating on the stock. “Further, we believe fourth quarter total net adds may come in above due to the ad-supported service launch being broader than expected.”
“While we are encouraged with ad potential over time, we believe meaningful positive revisions are unlikely near-term due to (foreign exchange headwinds) and slowing ad-free sub growth.”
Patterson sees Netflix adding as many as 7 million new subscribers over the final three months of the year, with around 4 million to 5 million of that total coming from the ad-supported service. That could boost revenues into the region of $7.9 billion.
Netflix shares were marked 1.35% higher in pre-market trading to indicate an opening bell price of $248.40 each, a move that would extend the stock’s gain from the end of the second quarter to around 39.3%, compared to a 6.5% decline for the Nasdaq.
The launch of the service, after years of push-back from co-founder Reed Hastings, marks not only a sea-change for Netflix but also for its larger streaming rivals.
Earlier this summer, Disney said it sees core Disney+ subscribers of between 135 million and 165 million by September of 2024, with an overall total of between 215 million and 245 million.
Disney also unveiled price increases for both is main streaming platform, which will rise by $3 to $10.99 per user, and pegged the cost of new ad-supported platform, which launches on December 8, at $7.99 per user.
For the three months ending in June, Disney added an impressive 14.4 million new Disney+ subscribers — compared to a loss of 970,000 for Netflix — taking its overall ‘family’ total, including EPSN and Hulu, to 221.1 million – and overtaking Netflix as the world’s biggest streaming service.