Netflix (NFLX 1.71%) dropped the ball over the weekend. The leading premium video streaming service was promoting a live reunion for the cast of the latest season of its Love Is Blind dating show on Sunday night. It was literally a missed connection. Technical issues prevented the broadcast from airing. The reunion will be available -- now pre-recorded -- starting Monday afternoon.
It can't afford to drop the ball again this week. Netflix reports its first-quarter results on Tuesday afternoon. There's a little more heft than usual to the financial update. Another missed connection would be brutal. Love may be blind, but Wall Street sees everything.
Hastings pudding
Founder and longtime CEO Reed Hastings revealed earlier this year that he was stepping down. The stock is trading marginally higher since Hastings' announcement, so the consensus appears to be that it will be business as usual in his absence. Programming and content guru Ted Sarandos was serving alongside Hastings as co-CEO since 2020. It was simply just a matter of time before the leadership baton was fully handed over, but instinctively everyone will be dissecting the first quarter's performance under the new normal.
Netflix's guidance calls for $8.172 billion in revenue, a modest 3.9% year-over-year increase. The outlook also calls for a 20% decline in net income -- to $1.275 million, or $2.82 a share -- but this isn't a deal breaker. The shares moved higher in the previous quarter despite a larger drop in profitability and Netflix growing revenue at half of this week's projected pace.
Image source: Getty Images.
Beyond the CEO transition there are more questions than usual for a Netflix quarterly update:
- How is the new initiative to crack down on password sharing playing out?
- Are more subscribers shifting to the cheaper ad-supported tier it rolled out late last year?
- With consumers making spending choices in this iffy economic climate is Netflix still on track to nearly double its free cash flow to $3 billion in 2023?
It's undeniable that Netflix is well positioned in the market that it championed. It has the scale to be profitable while many of its peers can't generate positive returns on their investments. A shakeout is inevitable in the next couple of years among streaming services stocks, and Netflix will benefit as one of its survivors.
Wall Street hasn't gone off script in the last three months. Analysts continue to expect revenue to climb 3.9% in Tuesday's report. The $2.85 a share in net income they're targeting for the first quarter is roughly where Netflix and its historically conservative prognostications were standing back in January.
Things are never that smooth and predictable. That would be poor programming in an entertainment industry where consumers -- or in this case, investors -- are always looking for plot twists and fresh takes out of inspired content. The gradual process of enforcing password sharing is controversial, but it can be huge if distant friends and relatives of account holders initiate their own direct and paid connections with Netflix. Putting up with ads on Netflix in exchange for a cheaper monthly bill makes sense, but success there is limited to the state of the connected TV advertising market and whether Netflix is collecting enough on marketing missives to offset the lower premiums.
Netflix shareholders have questions and expectations. They don't want to get jilted at the virtual altar twice this week.
