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Are Netflix Shares Overvalued? Top Tech Analyst Mahaney Weighs In on Earnings Expectations

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Netflix Stock May Underperform in Second Quarter Earnings, Says Analyst

Short-term Downgrade due to Overheated Stock

Evercore ISI's Mark Mahaney believes that Netflix stock may have overheated leading up to the second quarter earnings report. He anticipates that the dominant streaming platform will underperform during this period, causing him to downgrade the stock in the short-term.

Risks of Inflated Expectations

Mahaney notes that while Wall Street's expectations for revenue, net subscription growth, and earnings per share are reasonable, there may be inflated expectations from the buyside. He explains that the market is likely expecting around 4-5 million new subscribers in Q2 and a similar or slightly higher number in Q3, which creates a risk of not meeting these high expectations.

Revenue and Subscriber Growth Projections

Evercore expects Netflix to match Wall Street estimates of $8.24 billion in revenue for the second quarter. However, their projection for net additions to global paid subscribers is slightly lower at 1.7 million compared to the Wall Street estimate of 1.8 million. Mahaney highlights that for Q2, they are looking for 3.4% year-over-year growth in revenue, in line with guidance and comparable to Q1 growth on an easier 1 percentage point comp.

Bullish on Netflix in the Long-term

Mahaney remains optimistic about Netflix's prospects in the long-term. He predicts adjusted earnings per share of $20 by 2025 and a price-to-earnings multiple of 25, eventually driving the stock to $500 per share in 2024. Despite the stock already exceeding their $400 price target and being removed from their Top Picks list, Evercore maintains an Outperform rating on Netflix as they believe the stock still has potential for growth.

Conclusion: A "Hot Take" on Netflix's Second Quarter Earnings

Potential Impact on New Business

The analysis of Netflix's second quarter earnings by Evercore ISI's Mark Mahaney presents an interesting viewpoint that may have implications for new businesses in the streaming industry. While there is a short-term downgrade predicted for Netflix stock, it is important to consider the broader context and potential lessons for aspiring streaming platforms.

Manage Expectations

One key takeaway from Mahaney's analysis is the risk of inflated expectations. Wall Street's projections for Netflix's revenue, net subscription growth, and earnings per share are deemed reasonable, but there may be overly optimistic expectations from the market. This serves as a reminder for new businesses to carefully manage their stakeholders' expectations and not fall victim to exaggerated forecasts. Maintaining realistic projections can help avoid disappointment and maintain investor confidence.

Focus on Long-term Growth

Despite the short-term downgrade, Mahaney remains bullish on Netflix's long-term prospects. This suggests that, as a new business, it is essential to adopt a forward-looking mindset. While short-term performance is critical, it should not overshadow the overall vision and growth potential of the company. By consistently delivering value and staying committed to long-term goals, new businesses can build a strong foundation for future success. In conclusion, the analysis of Netflix's second quarter earnings provides insights that can be valuable to new businesses in the streaming industry. Managing expectations and focusing on long-term growth are two key takeaways that can help guide new businesses towards sustained success in a competitive market. Article First Published at: https://www.cnbc.com/2023/07/11/top-tech-analyst-says-netflix-shares-have-gotten-ahead-of-themselves.html

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