Netflix subscriber numbers to take a hit from removal of Russian customers, analysts warn

Published Tue, Apr 12 20223:11 PM EDTUpdated Tue, Apr 12 20223:56 PM EDT

Analysts are going into Netflix's first-quarter report next week with some trepidation, as they trim subscriber projections to reflect the removal of customers in Russia. The streaming platform on March 6 pulled its service in Russia following the country's invasion of Ukraine. Firms including JPMorgan and Truist estimate — citing reporting from The Information — that Netflix has between 1 million and 2 million paid subscribers in Russia. For the fourth quarter of 2021, Netflix reported 222 million total paid memberships. JPMorgan lowered its first-quarter net additional subscribers estimate to 1.5 million, versus 2.7 million prior. The firm also trimmed its second-quarter net adds projection to 1.5 million from 1.7 million, citing "some spillover of Russia impact." "Expectations for 1H22 are muted — as they should be — and ... that's before removing 1M-2M subs in Russia," JPMorgan's Doug Anmuth said in a Thursday note. The consensus Wall Street estimate for global paid net adds in the first quarter is 2.84 million, according to FactSet, versus 3.98 million the year prior. However, JPMorgan sees Netflix having a strong second half of 2022. JPMorgan has an overweight rating and a $605 price target on Netflix, implying 73.9% upside from Monday's closing price. Meanwhile, Truist lowered its price target on Netflix to $409 per share from $470 after incorporating the removal of Russian customers into its analysis. The new projection is 17.5% higher than Monday's close. The firm has a hold rating on Netflix. Baird noted the war in Ukraine could also impact subscriber counts in the region of Europe, the Middle East and Africa. Europe comprises 33% of Netflix's global subscribers, Baird highlighted. Baird has a neutral rating on Netflix and a $420 price target, implying 20.7% upside. "We would highlight higher churn risk in EMEA, the company's second largest region, due to potential consumer spending pressure tied to higher energy costs and broader inflationary pressures," Baird's William Power said in a note Thursday. "That could prove transitory, but could still muddy the subscriber growth outlook, the key driver of the stock." Netflix in January also raised monthly prices for subscribers in the U.S. and Canada, which Cowen analyst John Blackledge said could "increase near-term churn" for the company. Cowen estimates net adds of 63,000 in the U.S. and Canada versus 448,000 in the first quarter of 2021. Netflix shares are struggling this year, down 51.1% in 2022 versus the S & P 500's 8% decline.

The Netflix logo is seen on its office in Hollywood, California.

Lucy Nicholson | Reuters

Analysts are going into Netflix's first-quarter report next week with some trepidation, as they trim subscriber projections to reflect the removal of customers in Russia.