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Netflix Q1 results top estimates, but weaker revenue outlook bites; UBS upgrades

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By Yasin Ebrahim and Senad Karaahmetovic — Netflix (NASDAQ:NFLX) reported Tuesday reported first quarter revenue and guidance that fell short of Wall Street expectations just as many were expecting the streaming giant to benefit from the launch of its ad-supported tier and a crackdown on password sharing.

Netflix trade about 1.5% lower in pre-market Wednesday.

Netflix announced earnings per share of $2.88 on revenue of $8.16 billion. Analysts polled by anticipated EPS of $2.86 on revenue of $8.47 billion.

Netflix added 1.75 million users, missing analyst estimates of about 2.41M net adds.

Looking ahead, the streaming giant said its revenue of $8.2B is up 3% year-over-year, but short of analysts’ expectations.

The subdued outlook on second quarter revenue comes as the streaming giant was expected to have benefited from the launch of an ad-supported tier and a crackdown on password sharing.

But the company forecast that second quarter paid net adds were expected to be “roughly similar to Q1’23.”

UBS analysts upgraded the stock to Buy from Neutral as they believe “the backdrop is supportive of sustained double-digit profit growth & ramping FCF.”

“We see Netflix as the main beneficiary of easing competition in DTC as peers focus on profits. We believe this will drive upside to subs/pricing power in the coming yrs while also keeping a lid on content costs, one of the biggest swing factors for profits/FCF (spend now expected to decline in ’23). Along with stronger conviction/visibility into new monetization initiatives (paid sharing NT; ad LT), performance is inflecting and we expect rev growth to re-accelerate to 10%+ while driving 200-300 bps of annual margin expansion amid relatively stable content spend,” the analysts said.

Piper Sandler analysts reiterated a Neutral rating on NFLX stock but raised the price target to $350 per share. Similarly, Morgan Stanley analysts reiterated an Equal Weight rating.

“We see a fairly balanced risk/reward at current levels given market expectations already bake in revenue growth accelerating in 2H23and into ’24. NFLX shares are trading at 22x our ’24E P/E, a premium multiple to the market that we see as warranted but unlikely to expand given robust expectations ahead and what remains a competitive and maturing streaming market.”

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