Netflix (NFLX) reports first quarter earnings results on April 18 — but Jefferies analysts say that will only be one part to the stock's recovery story.
The bank, which has a Buy rating on the stock and $415 price target, estimates Netflix's controversial password-sharing crackdown and recently launched ad-supported tier will drive a "reacceleration" towards double digit revenue growth by the end of 2023 and well into 2024.
"We're still very early in both [advertising video on demand] and paid sharing, but any commentary on conversion, churn and/or adoption of the new offerings is more important to our thesis than 1Q results," Jefferies wrote in a new client note on Thursday.
Investors will likely battle "a lot of noise" in the second quarter ahead of the upside, Jefferies warned.
"We expect a lot of noise in 2Q23, and are being very conservative in our own modeling of churn in response to password crackdown," the bank wrote.
"However, we believe most of that churn will be somewhat impulsive, as it has minimal impact on the existing subscriber, and those members will return to the service over the course of 2023."
Jefferies recommends "buying any dip associated with a conservative 2Q23 guide," adding Netflix is poised to be the number one distributor in video content amid those longer-term revenue drivers while discipline around content spend will "jumpstart" margin and free cash flow expansion efforts.
Netflix shares, despite losing about 7% of gains since hitting a year-to-date high of $369.02 a share on January 26, have climbed more than 5% since the company's fourth quarter earnings results and are up 15% since the start of the year — far outpacing the S&P 500's 7% gain.
Bank of America described Netflix as a "world class brand," naming the streamer as one of its top second quarter picks earlier this week.
Wells Fargo analyst Steve Cahall, who maintained his Overweight rating and $400 price target, added to bullish Wall Street sentiment. The analyst wrote in a recent note the company's password sharing crackdown appears "to be creating significant upside to estimates" and "is a key part of the long-term NFLX bull case."
Alexandra Canal is a Senior Entertainment and Media Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
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