Netflix Earnings Preview: Price Hikes, AI and Cash Flow in Focus

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As a devoted Netflix enthusiast, I don’t sweat the small stuff like subscriber numbers disclosures. That was the calm response of Wall Street when Netflix unveiled their first-quarter results in April, lacking the usual sub updates. Now, financial analysts are getting ready for Netflix’s second-quarter results, which they will share after the stock market wraps up on Thursday, July 17.

The effects of recent price increases, such as elevating the ad-tier to $7.99 per month in the U.S. (previously $6.99) and the premium tier cost increasing by $2, now at $24.99, along with the expansion of its affordable advertising tier and its current and future movie and TV lineup, are topics under scrutiny for analysts on Wall Street.

Multiple analysts have raised their predictions for Netflix’s share price, with Ted Sarandos and Greg Peters as the driving forces behind this trend, given that the company’s stocks have already risen by approximately 40% in 2021.

In simpler terms, Evercore ISI analyst Mark Mahaney considers Netflix to be one of the safest investments this quarter. He continues to recommend it as a strong buy with a predicted price of $1,350. Mahaney believes that the current expectations for revenue, profit, and earnings for the second quarter are fair. Although the anticipated growth in revenue by 5% is more than usual (which has been between flat to +2% over the past three years), he notes that Netflix could see additional growth due to a positive foreign exchange rate impact and the full effects of recent price increases in certain regions. Additionally, Netflix has shown a consistent pattern of surpassing its revenue and profit projections in the past.

Mahaney identifies five possible advantages, such as:
1. The optimistic insights gained from our mid-May meeting with Netflix executives, where they revealed that Netflix’s global monthly active advertisers had surpassed 94 million.
2. Our survey conducted in late May across the U.S. and U.K., which pointed towards generally positive trends in subscriber satisfaction in both regions, as well as clear evidence of Netflix’s dominance in content quality leadership.

The expert additionally highlighted his analysis of advertising channels, revealing that Netflix had surpassed a significant reliability/capacity limit with marketers. Moreover, he emphasized the incredibly powerful launch of the final episode of “Squid Game” on Netflix in late June, which broke new ground and set records (60 million views in the first 3 days), topped charts in 93 countries, and generated an impressive 4.56 billion impressions across social media channels.

Manahey pointed out a potential additional advantage – Netflix’s top 10 viewership data indicating exceptionally high viewer interaction during the second quarter, showing a significant increase in viewing hours compared to the first quarter.

As a devoted gamer, I’m keeping my “outperform” rating and $1,400 price target for the stock, as stated in my earnings preview report on Monday. With Netflix no longer revealing new subscriber numbers, the spotlight has moved from quarterly goals to the broader financial health and strategic vision of the company. I think investors have already taken into account a small profit surplus and an increase in the full-year 2025 guidance forecasts.

She continues to express optimism for the future. In 2025, she anticipates that revenue growth will be fueled by price increases, and in 2026, she expects the ad tier to boost revenue even further. As Netflix continues to grow, its profit margin could significantly surpass our predictions, leading to substantial free cash flow.

According to analyst Brian Pitz of BMO Capital Markets, artificial intelligence (AI) presents a potential advantage for Netflix. In a report published earlier this week, he maintained his “outperform” rating and raised his projected stock price from $1,200 to $1,425, stating: “We believe that Netflix stands to benefit significantly from AI, particularly in the areas of content creation and cost savings. This presents a significant opportunity for multi-year increases in operating income.

He went on to say: “Artificial Intelligence (AI) is starting to spread, bringing along numerous advantages for the next few years due to the massive number of global user interactions, estimated at ‘hundreds of billions.’ AI tools are expected to work harmoniously with current Computer-Generated Imagery (CGI) and Visual Effects (VFX) products, streamlining production processes, expanding creative possibilities, and boosting user interaction.

Pitz increased his forecasts for the second half of 2025 regarding both revenue and operating income, a move that mirrors the unprecedented viewership numbers of “Squid Game” Season 3, foreign exchange rates, and a compelling lineup of content set to debut in the latter part of the year.

As the upcoming earnings report approaches, analyst Laura Martin from Needham & Co. has raised her predicted price for Netflix stock from $1,126 to a new high of $1,500, maintaining her “buy” recommendation and highlighting positive aspects of the company.

She particularly appreciates the streamer because “Netflix possesses a broad global reach, which could optimize its earnings and content spending. Price hikes, either directly or by tightening its sharing policy, are expected to boost income. Bundling with other services may reduce customer turnover (churn). Advertising could fuel revenue expansion and widen profit margins, as advertising usually offers 75% additional profits. Lastly, given that generative AI tends to advantage tech-focused companies, Netflix fits the bill.

From a financial perspective, she appreciates Netflix for several reasons. Firstly, its consistent investment in content, amounting to $17 billion-$18 billion annually. This spending pattern is predictable because Netflix has promised that its cash outflow on content will be roughly equivalent to its amortization, maintaining a ratio of about 1.1 times. This makes the free cash flow more predictable. Secondly, Netflix has stated that it plans to utilize its increasing free cash flow to repurchase shares instead of reducing debt (now that they have an investment-grade rating). This strategy creates a kind of floor for the share price, thereby reducing potential financial risk.

Analyst Jessica Reif Ehrlich from Bank of America had previously raised her projected price for Netflix at the end of May. Maintaining her “buy” recommendation, she bumped up her target to $1,490 in a report titled “Strategizing Offense and Defense in Media.

The analyst believes that Netflix remains strong due to its dominant presence in streaming, potential for expanding user base, promising prospects in advertising and live sports, and ongoing financial growth. This confidence is bolstered by its powerful brand, extensive global subscriber base, innovative approach, and clear focus on key growth factors. As a result, they predict that Netflix will continue to exceed expectations.

Reif Ehrlich enthusiastically endorsed Netflix’s programming schedule for the latter half of 2025, labeling it a “content feast.” He contended that this lineup offers an exciting fusion of popular originals, sequels, and finales, along with a variety of live/sports content to boost viewer engagement driven by ads. In summary, Ehrlich asserted that the comeback of Netflix’s top three watched series – Squid Game (6/27), Wednesday (8/6), and Stranger Things (second half 2025) – coupled with new productions like Guillermo del Toro’s Frankenstein, Adam Sandler’s Happy Gilmore 2, and Tina Fey’s The Four Seasons will foster strong viewer retention and subscriber growth.

In his second-quarter earnings outlook, TD Cowen analyst John Blackledge expressed optimism about a robust lineup of events, dubbing it as a “monster” schedule. He maintained his positive stance on the stock and increased his price target to an impressive $1,440.

According to our second-quarter survey findings, it appears that Netflix is successfully asserting its pricing authority, even following the price increase in January.” To clarify, Netflix raised its subscription fees in countries like the U.S., Canada, Portugal, and Argentina back in January, as noted. This move should lead to a boost in average revenue per subscriber, he emphasized.

According to Blackledge, we can anticipate an impressive lineup of TV and movie releases in the second half of this year, featuring popular titles like “Wednesday” starring Jenna Ortega and the long-awaited fifth season of “Stranger Things.” Moreover, the return of “Squid Game” towards the end of the second quarter should boost viewership during the third quarter. Overall, Netflix appears to be in a strong position as they gear up for an even more impressive slate of content in the second half of 2025.

Pivotal Research Group analyst Jeffrey Wlodarczak, who is known as the most bullish Netflix advocate on Wall Street, has upped his stock price prediction for the streaming service to an impressive $1,600. He maintains his “buy” recommendation, attributing this increase to a shift in his projected year-end price from 2025 to 2026 and growing faith in Netflix’s strong market position.

Netflix has yet to reach its full potential globally, as it provides an exceptional value for entertainment that is consistently getting better. This is further bolstered by their ad-supported service, which should enable the company to maintain strong subscriber growth and average revenue per user (ARPU). Factors such as price increases, increased advertising, and offsetting lower ARPU in developing markets make this a potent combination.

In summary, Netflix has clinched the global lead in premium streaming content. To maintain this position, it’s crucial for Netflix management to maximize their advantages and sustain the subscriber/revenue per user (ARPU) cycle. As they expand, they gain more power over competitors and content creators, which improves their service, driving further subscriber and ARPU growth. This increased revenue enables them to invest in high-quality content, thereby expanding the protective barrier around their core business model.

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2025-07-16 15:55