Netflix's subscriber growth signals better times ahead, but some analysts say it's still too early to buy

Published Fri, Jan 20 20236:19 AM ESTUpdated Fri, Jan 20 20239:30 AM EST

Netflix 's strong fourth-quarter subscriber growth and solid content slate may signal the start of better times for the streaming stock, but it may be too early to buy up shares, according to some Wall Street analysts. The company on Thursday shared a big earnings miss but surpassed subscriber expectations , which contributed to the stock's more than 5% rise before the bell. Netflix reported 7.66 million adds, compared to 4.57 million subscribers expected by StreetAccount estimates. The streaming giant also announced Reed Hastings' departure as CEO . Analysts view the company's new advertising tier and its content slate as key to Netflix's financial performance in the months ahead. However, concerns linger over the company's churn. Needham's Laura Martin said in a note to clients Friday that it's a little early for investors to get into the stock, as estimates and valuations for shares currently appear "too high." "From a valuation point of view, we worry that NFLX's multiple is too high as its growth principally relies on price increases," she said. "That is, sub ads have been decelerating every quarter for the past 6 quarters, reaching 4% y/y growth in 4Q22." According to Martin, the company may also need to lift prices by 6% to 8% a year in order to attain double-digit revenue growth moving forward. NFLX 1D mountain Netflix jumped after earnings "In our view, a 33x P/E is too high a multiple for a business where growth depends predominantly on price increases," she wrote. "We prefer business models where both users and pricing are growing." Wells Fargo's Steven Cahall views double-digit revenue growth as achievable for the company, although unlikely at least until the second half of the year. He expects shares to take a pause until the summer as paid sharing begins to impact net additions, and anticipates lower earnings and margins. "We expect 1H23 to be a pause as paid sharing affects churn," he wrote. "However, once through it we like the setup for estimate upgrades in '24+." Since Netflix reported second-quarter earnings results, its shares have risen more than 46%. How the company executes on its ad-supported tier, password-sharing initiative and content slate will determine whether shares continue to outperform, wrote Goldman Sachs' Eric Sheridan. Still, the analyst reiterated his sell rating, saying that the risk-reward looks skewed to the downside at these levels with momentum already priced into shares. JPMorgan's Doug Anmuth, on the other hand, reiterated his overweight rating on the stock, noting that paid login sharing should drive revenue acceleration and margin expansion in 2023. He also noted that Netflix's "content cadence has become both more normalized & more successful relative to the choppiness experienced during the pandemic." Wolfe Research's Peter Supino, meanwhile, lifted his expected net additions forecast to 20 million from 11 million for the company in 2023, saying in a note to clients that commentary and the results supported his "confidence in the subscriber outlook & operating leverage opportunity." On the leadership front, Supino and analysts view the CEO transition as a positive for the company. "While Reed Hastings will certainly be missed as he steps down as Co-CEO, and transitions to Executive Chairman, we don't expect NFLX to miss a beat with Greg Peters rising from COO to Co-CEO," Supino said. — CNBC's Michael Bloom contributed reporting.