Netflix Inc.’s stock rose slightly in premarket trade Thursday after falling 5% on Wednesday, as Benchmark said the streaming giant is well positioned for scripted programming delivery in the face of the prolonged Hollywood strikes.
“Netflix
NFLX,
remains favorably positioned for scripted programming delivery in the face of the prolonged SAG and WGA strikes off its international production and already produced domestic content,” analyst Matthew Harrigan wrote in a note to clients.
The selloff on Wednesday came after the company’s chief financial officer acknowledged that the Hollywood strikes are hurting business and offered soft guidance on operating margins. Neither SAG-AFRA, which went on strike July 14, nor the Writers Guild of America, which began striking May 2, is talking to the Alliance of Motion Picture and Television Producers, a group that includes Netflix.
Equally concerning to some investors were the operating margins Neumann offered— in the 18% to 20% range — while the current consensus is around 19.8%. He said he expects margins to “tick up going forward” as the company accelerates revenue growth in 2024 and beyond.
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Benchmark’s Harrigan, who is sticking with a still-bearish sell rating on the stock, noted some positives for Netflix, such as only light cancellations from its crackdown on password sharing.
“Netflix is making nascent advertising progress off its well-received upfront market presentation and ad-tech stack collaboration with Microsoft,” he wrote in a note to clients. “Given commissions and technology costs AVOD contribution margin is lower than for the password sharing modifications.”
Still, all studios and streamers will be affected by an eventual strike resolution — “including revised (higher) compensation to actors and writers for streaming, and Netflix could be especially impacted as the prime mover for the absence of residuals for streaming relative to linear,” he wrote.
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Harrigan wrote that he is sticking with his $293 price target on Netflix stock, which closed Wednesday at $412.24.
Neumann’s comments, meanwhile, prompted Pivotal Research Group analyst Jeffrey Wlodarczak to reduce his average revenue-per-user growth projections to 2% from 4% on Wednesday, reducing Netflix’s fourth-quarter revenue forecast to $8.73 billion from $8.89 billion. Analysts on average are modeling for $8.85 billion in Netflix’s fourth fiscal quarter.
Wlodarczak maintained a buy rating and price target of $600 on shares of Netflix.
Netflix stock has gained 40% in the year to date, while the S&P 500 SPX has gained 16.4%.