Live sports, ad-supported plans and pricing strategies are among the items highlighted by a Netflix Inc (NASDAQ: NFLX) analyst ahead of the company's fourth-quarter earnings report, which will include results from NFL games, a big boxing match and the premiere of a second season of "Squid Game."
The Netflix Analyst: Goldman Sachs analyst Eric Sheridan reiterated a Neutral rating on Netflix and raised the price target from $750 to $850.
The Analyst Takeaways: Netflix outperforming the S&P 500 over the past 12 months comes with several key themes, Sheridan said in a new investor note.
The analyst highlighted a competitive moat, a push into live sports and partnerships in advertising as key themes.
"Initial forays into live sports/entertainment are the beginning of a multi-year narrative of compounded growth that will build in momentum," Sheridan said.
Sheridan said the key investor debates going forward are the pace of price increases, management commentary on live sports and the overall media landscape and competition.
"With recent key live events being stimulative of user engagement and sign-ups, we continue to see an attractive advertising opportunity with live events continuing to contribute to Netflix's advertising over time."
Sheridan said Netflix has "an attractive advertising opportunity" with its live events, including sports.
The analyst also increased net subscriber additions for the fourth quarter due to third-party data trends.
"According to Antenna data and Netflix, the Jake Paul vs. Mike Tyson match brought in ~1.4mm new sign-ups in the U.S. to the streaming service."
The boxing match in November had around 65 million concurrent streams globally. Two NFL games on Christmas had around 30 million global viewers each.
"Against this backdrop, we continue to see an attractive advertising opportunity with live events continuing to contribute to Netflix's advertising over time."
Netflix's ad-supported tier represents around 56% of gross additions and around 43% of subscribers in the U.S., Sheridan added.
The analyst sees the live events and recent test cases of the boxing match and NFL games helping to boost its advertising efforts and seeing a higher average revenue per member for ad-supported subscribers. In the past, the ARM has been lower for ad-supported subscribers, which is an area Sheridan thinks Netflix will show improvement on in the fourth-quarter results.
Netflix's fourth quarter included the boxing match, two NFL games and the return of several hit shows, including "Squid Game" on Dec. 26.
One concern from the analyst is the current first quarter, which has a lower slate of original content.
What's Next: Netflix will report fourth-quarter financial results after market close Jan. 21.
Analysts expect the company to report fourth-quarter revenue of $10.13 billion, compared to $8.83 billion in last year's fourth quarter, according to data from Benzinga Pro.
The company has beaten analyst estimates for revenue in seven of the past 10 quarters.
Analysts expect the company to report fourth-quarter earnings per share of $4.20, up from $2.11 in last year's fourth quarter. The company has beaten analyst earnings estimates in eight of the last 10 quarters.
Netflix's quarterly results will come shortly after it kicked off its partnership with WWE with the first live event streamed on Jan. 6. Commentary on the company's live sports events and the "Squid Game" second season will likely be among the most watched items from investors and analysts.
NFLX Price Action: Netflix stock is trading flat at $878.39 on Wednesday at publication versus a 52-week trading range of $472.97 to $941.75. Netflix stock is up 81% over the last year.