Here's what every major analyst expects from Netflix's third-quarter earnings report

Published Tue, Oct 20 202012:26 PM EDT

(This story is for CNBC PRO subscribers only.) Netflix has been one of the biggest beneficiaries of the coronavirus pandemic and Wall Street analysts believe the company has a good chance to sustain the momentum when it reports third-quarter earnings on Tuesday after the bell. Shares of the streaming giant are up 62% this year as the stay-at-home stock continues to take advantage of the permanent shift to home viewing and consumers gobble up content. However, the company must also prove it can retain and add subscribers as well as keep competition at bay, according to analysts. Yet others say Netflix needs to raise prices and inevitably will in order to bring in more revenue. Investors will also be watching for any fall out from Netflix's "Cuties" show, which many say sexualized underaged girls. Here's what the major analysts expect from Netflix's earnings report: ""We continue to see short and long-term benefits to Netflix growth and earnings power due to the changes brought on by the pandemic," Morgan Stanley analyst Benjamin Swinburne said. The firm believes the company is so well-positioned that competitors will have a hard time catching up and investors will reap the rewards. "The virtuous cycle of leading global distribution scale and rising investments in film, unscripted, and local originals should create increasing and outsized returns," he said. Simply put, no one else can compete with Netflix, Piper Sandler analyst Yung Kim said. "In other words, despite new services from Disney, HBO and Apple (and probably others), we expect minimal long-term impact to Netflix subscriber addition and retention." And Deutsche Bank believes "a 3Q subscriber beat, followed by a strong 4Q and price increases, will reinforce the bull case for the stock," analyst Bryan Kraft said. The firm called Netflix a "long-term structural winner." The sentiment was similar at investment firm Canaccord. "Potential price increases in the US could be another growth lever next year," analyst Maria Ripps and her team said. No matter what happens Jefferies analyst Alex Giaimo said he sees an opportunity for investors. "While the stock has traded down 8 of the last 12 prints, we recommend a buy-the-dip strategy given sustained fundamentals and NFLX history of long-term out-performance," he wrote. But Needham analyst Laura Martin was more cautious and said the company's previous earnings report was the "positive perfect storm" as consumers were staying home and everything was closed. "No longer true in the third quarter, " she said. Cowen- Outperform rating "NFLX shares are up 70% YTD alongside a pandemic surge, following huge sub beats in 1Q / 2Q respectively and 25.9MM total paid net adds in 1H20, more than double vs. 1H19. With many consumers continuing to stay home as social activities remain limited, Netflix engagement has likely remained high; meanwhile, the company offered a relatively conservative 3Q guide in our view, given likely pull forward into 1H20 given the massive demand surge." Baird- Outperform rating "Our quarterly consumer survey suggests flattish subscriber levels sequentially, implying limited growth, though our estimates and guidance already assumed a significant slowdown from the hyper growth in 1H'20. While growth may slow near term, we remain positive on the longterm growth opportunity and improving free cash flow trajectory, particularly with its breadth and volume of content standing out relative to competitors." RBC- Outperform rating "We believe that Netflix has achieved a level of sustainable scale, growth, and profitability that isn't currently reflected in its stock price. This conclusion is based on our assessment of Netflix's 60+ million U.S. Subscriber and 100+ million International Subscriber bases, which makes Netflix one of the largest global Entertainment subscription businesses." Truist- Buy rating "We think there's modest upside to 3Q consensus member adds (including factoring 'Cuties' churn); we think 4Q consensus is set reasonable. Stock's moved up since our last 'Monthly', EV/sales is near 3-year high, though only slightly above average relative to market. SPOT (Buy, reports 10/29): We think 3Q consensus is net reasonable." Needham - Underperform rating "2Q20 was the positive perfect storm for NFLX with streaming hours viewed up 50% y/y, NFLX had the only original content, plus zero competition from live sports, cinemas, restaurants, cruises, etc. No longer true in 3Q20. ... .We believe NFLX must add a second, lower-priced option to compete with Disney+, Apple+, Hulu, Comcast's Peacock and CBS All Access , each of which have $5-$7/month (or free) consumer options." JPMorgan - Overweight rating "We believe NFLX is a key beneficiary and driver of the ongoing disruption of linear TV, with the company's content performing well globally and driving a virtuous circle of strong subscriber growth, more revenue, and growing profit. We expect NFLX to continue to benefit from the global proliferation of Internet-connected devices and increasing consumer preference for on-demand video consumption over the Internet, with NFLX reaching 300M global paid subs by 2024." BMO- Outperform rating "We think there is another leg as the FCF generation becomes reality, and we continue to like the lack of antitrust/ regulatory overhang vs. rest of FAANG. ... .Current Sentiment: Mostly not controversial finally, but more cautious investors starting to point to tough comps ahead and churn around a potential US price increase." Wedbush- Underperform rating "We expect content spending to trigger substantial cash burn for many years. Content migration to competing services and price hikes may slow subscriber growth, and consistently negative FCF makes DCF valuation speculative. ... .Netflix faces the potential for materially higher churn going forward due to a gap in content production. Deutsche Bank- Buy rating "We believe Netflix is a long term structural winner, and while the valuation does not leave much room for multiple expansion, we believe a 3Q subscriber beat, followed by a strong 4Q and price increases, will reinforce the bull case for the stock, allowing it to grind higher over the next 12 months, and possibly work to some degree in the short term as well." UBS- Neutral rating "Against that backdrop, we find the stock's risk/reward less compelling from current levels over the short/medium term. In our opinion, NFLX's LT narratives remain intact but we would rather be constructive at levels when a mix of potential subscriber volatility, FCF dynamics & competition are better reflected in the share price." Morgan Stanley- Overweight rating "We continue to see short and long-term benefits to Netflix growth and earnings power due to the changes brought on by the pandemic. The virtuous cycle of leading global distribution scale and rising investments in film, unscripted, and local originals should create increasing and outsized returns. ... .However, we believe Netflix's competitive moat is perhaps deeper than ever today. Production delays due to COVID have likely impacted its competitors more significantly than Netflix. Raymond James- Market perform rating "We expect relatively solid 3Q20 results for Netflix, ahead of the company's guidance and broadly in line with consensus. Sentiment is high entering the 3Q20 report, with the stock up 14% over the past month and consensus revising upward into the quarter. We are raising our estimates for net subscriber additions to 3.5M in 3Q20 based on our checks, as data points show continued healthy demand for the service following the pandemic-related surge in 1H20." Canaccord- Buy rating "Expect strong Q3 results, 2021 estimates could be conservative: We expect Netflix to report 3.6M net additions (up from our prior estimate of 2.6M net adds and guidance of 2.5M), as the platform will likely continue to benefit from broader industry tailwinds amid the extended stay-at-home environment. ... . Potential price increases in the US could be another growth lever next year, adding 1-2% upside to total company FY21 revenue." KeyBanc- Overweight rating "We feel more confident in Overweight-rated NFLX as 1) the pricing cadence is back to normal; 2) favorable competitive positioning; and 3) content catalysts. ... .While Netflix may resume its historic conservative guidance, we believe investors will look to content launches (e.g., Over the Moon) as upside drivers and audience creation abilities (e.g., Cobra Kai) as upside drivers." Jefferies- Buy "3Q setup looks challenging with the stock +14% in the last month and buyside net add expectations approaching 5MM.While the stock has traded down 8 of the last 12 prints, we recommend a buy-the-dip strategy given sustained fundamentals and NFLX history of long-term out-performance. We continue to believe near-term price hikes will be the next catalyst, and see a bull case path to $700 over the next 12-18 mos." Piper Sandler- Overweight rating "Netflix leads a category that contains material multi-year growth potential. As consumer content dollars shift from traditional TV to streaming, we think the market will support multiple players, with Netflix leading the way. In other words, despite new services from Disney, HBO and Apple (and probably others), we expect minimal long-term impact to Netflix subscriber addition and retention." Wells Fargo- Overweight rating "If we are to believe reports then NFLX faced a short-lived but potentially stark churn uptick in September due to controversy around Cuties. We think this could weigh more heavily on Q3 net adds than investors realize so we reduce our estimate for global streaming net adds from +5mm to +2.5mm (NFLX's guidance). Given how strong Netflix is as a service we're loathe to get too negative, but our churn analysis does imply some meaningful pressure." Pivotal - Buy rating "While clearly in 1H'20, NFLX benefited massively from global Covid-19 stay-at-home orders (highlighted by 1H net subscriber additions rising +110% y/y to nearly +26M), our view remains that the unfortunate Covid-19 situation simply accelerated trends already in place (PayTV declines with SVOD benefiting) and NFLX is likely to remain as the dominant global SVOD player for the foreseeable future." Goldman Sachs- Buy rating "We expect Netflix to report 3Q results well above guidance and consensus expectations, with roughly 6mn net subscriber additions, driven by growth in content on the platform, a lack of competition for entertainment hours and spend, and more time being spent at home, potentially offset by churn levels modestly higher than we've seen in the past two quarters. While management is likely to continue to guide conservatively given outperformance earlier in the year and the massive uncertainty of the current environment, we believe consensus estimates for 4Q and beyond remain too low." Credit Suisse- Neutral rating "Netflix continues to capture a growing share of global video consumption, and we do not see Netflix ever yielding its leadership position to 'the old guard', our traditional media companies. Still, we see risk/reward as balanced and do not see a catalyst near-term for Netflix's stock to discount substantially more growth than it already is. Historically that has come from Netflix beating subscriber estimates, but as outlined above 2021 consensus does not appear conservative to us."

The logo of of the Online Streaming giant Netflix is seen on a screen of a smartphone next to a screen with an illustration of the stock market.

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(This story is for CNBC PRO subscribers only.)

Netflix has been one of the biggest beneficiaries of the coronavirus pandemic and Wall Street analysts believe the company has a good chance to sustain the momentum when it reports third-quarter earnings on Tuesday after the bell.

Shares of the streaming giant are up 62% this year as the stay-at-home stock continues to take advantage of the permanent shift to home viewing and consumers gobble up content.

However, the company must also prove it can retain and add subscribers as well as keep competition at bay, according to analysts. Yet others say Netflix needs to raise prices and inevitably will in order to bring in more revenue. Investors will also be watching for any fall out from Netflix's "Cuties" show, which many say sexualized underaged girls.

Here's what the major analysts expect from Netflix's earnings report: