Netflix (NFLX) at Resistance Ahead of Q2 Earnings Release

Netflix (NFLX) has earnings released on Wednesday for the second quarter as it tests upside resistance.

NFLX: Weekly Chart

NFLX: Weekly Chart

The price of NFLX has had a strong 2023, moving from lows near $280 to $450. The price channel in play from the 2022 lows is now capping the upside move and could force a pullback.

Amid a strike in Hollywood, Netflix will start the second quarter media earnings season and shine some light on its subscriber momentum and the progress of its cheaper advertising tier. The company has started a crackdown on password sharing, and that has boosted subscriber numbers, leading to a resurgence in the stock.

Analysts raised their price targets on the company with high hopes for this earnings release to show continued momentum.

“Investors are focused on sub-trends and ramping monetization efforts when Netflix reports,” TD Cowen analyst John Blackledge said. “Investors will look for updates on Netflix’s monetization efforts—paid sharing and advertising tiers.”

Blackledge has the company as one of his “best ideas” for 2023. “Netflix’s paid sharing coupled with the ad tier rollout should drive long-term revenue upside, and the launch of paid sharing in the second quarter of 2023 along with the ramping ad tier should help drive membership and revenue growth in the second half of 2023.”

The analyst forecasts subscriber growth of 2.37 million in the second quarter, “versus consensus of around 1.7 million,” and a net gain of 12.1 million and “revenue re-acceleration” in the second half of 2023. His target for the stock is $500 with an “outperform” rating.

UBS analyst John Hodulik is also bullish, raising his Netflix stock price target from $390 to $525 while maintaining a “buy” rating. “We see Netflix as the main beneficiary as peers prioritise profits in streaming,” he wrote.

“Netflix introduced paid sharing more broadly in the second quarter. As a proxy for potential churn, we monitored Google search interest in ‘cancel Netflix,’ which saw less inflection in key markets launched in the second quarter than what was observed in Canada and Spain in the first quarter,” Hodulik wrote.

“We continue to believe paid sharing will drive a 5 percent-plus uplift to revenue and see the roll-out as key to driving scale in advertising with the growth in the ad-tier mix and better targeting. Netflix eliminated its basic ad-free tier in Canada (and de-emphasized it in the US), which we estimate could provide a 10 percent uplift to average revenue per user over time and should help scale the ad base faster than prior expectations.” 

Wall Street is bullish again on Netflix, but the stock is testing upside resistance and will need strong numbers to advance further from here.

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