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Netflix earnings and subscribers: What Wall Street is saying

Netflix (NFLX) shares are falling Friday morning to which Wall Street analysts attribute to the streamer's miss on second-quarter guidance estimates and its decision to omit subscriber figures from future earnings reports next year.

Morning Brief Anchors Seana Smith and Brad Smith review how analysts are responding to Netflix's first-quarter earnings, looking back on Citi Managing Director Jason Bazinet's comments to Yahoo Finance.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Luke Carberry Mogan.

Video transcript

SEANA SMITH: Another big story that we're watching today is, of course, Netflix. The stock lower after announcing it will stop reporting subscriber numbers starting its first quarter of 2025.

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We've seen some interesting analyst reaction to this news. We spoke to Citi Managing Director Jason Bazinet. And here's what he had to say about the decision. Spoke to him earlier this morning. Here's what he said.

JASON BAZINET: People want to see the sub-number to see how well the ad tier is doing. And now, Netflix isn't going to give the sub-number. So that's why there's so much anxiety. It implies to someone that there isn't really a natural transition to continue sub growth.

SEANA SMITH: Jason maintains a neutral rating on Netflix. Not impressed by this decision here from Netflix, but we actually saw Needham analyst Laura Martin upgrade the stock to buy from hold.

Now, she's a bit more optimistic. She sees a lot of upside in revenue growth, the possible benefits from Gen AI. One of the buzzwords once again here. Earnings season-- we talk about AI, any AI connection exactly what that could do here to boost the business. Obviously, giving analysts a bit more confidence in those names.

So Laura Martin making the argument here that Netflix is one of those companies standing to benefit from the adoption here of Gen AI. But, really, when you take a look at the Street's reaction, when you take a look at analysts reaction here, it's important to put this in perspective. And I think Jason did just that because you're seeing a lot of nerves on the street, when you take a look at shares of just about 6.5%.

A lot of that being attributed to the guidance. And the fact that they're not necessarily going to report subscriber numbers going forward. But when you look under the hood here, the quarter was, actually, very strong here for Netflix. It shows how dominant of a player they are within the space. How they are by far the leader within the streaming industry and looking to capitalize on that momentum, like you said, and gain even a further lead ahead by making some of these adjustments and some of these investments here for the future.

BRAD SMITH: A lot of hang up on those subscribers and whether or not that that's going to really change the granularity of the data and how investors can really assess the health of the company. I think there's plenty of other metrics that investors can still look to. It just shows that Netflix is not going to be giving us that same growth metric to look at quarter-over-quarter that we had become accustomed to getting at this point in time.

So where does the attention shift? The attention should shift, if you're asking Greg Peters, who's the co-CEO of Netflix, he's going to be shifting more of that annual guidance to a revenue range, give more of a long-term view there. They're not going to be silent on members. They mentioned, they're going to periodically update on when they grow and hit certain major milestones. They're also still going to announce those.

But there's one other key figure here that I think investors should be zeroing in on, especially, if you were listening in to this call last night, or even if you're just hot keying or Command-F-ing or Control-F-ing the earnings release this morning. And it's spending.

The content spending, which is something that we actually spoke with Jason Bazinet about, I think that was catching more analysts off guard. They expected that to remain flat. They're actually going to continue upping that. And that, I think, is more noteworthy, especially, as you think about their ambitions in either live sports, unscripted content for all the "Love is Blind" fans out there. And then, additionally, what the international scope of that content can look like too.

SEANA SMITH: That was also similar to what we heard from JP Morgan and Morgan Stanley out in reaction to these earnings here, just very positive about the fact, Morgan Stanley saying that Netflix's business model transition quote, "appears well on track."

Healthy double digit top line growth here. That looks sustainable, at least, in their eyes beyond this year heading in to 2025. And then JP Morgan, also, just saying, that, hey, these results look strong upside to subscriber numbers driving that strong start to the full-year revenue outlook. Yes, Wang. But there is a lot to like within this report, especially, when you take a look at some of those investment plans and where exactly Netflix is looking to grow the business beyond 2024 and looking to 2025.

JASON BAZINET: The investment plans are fast and furious. It's F1. They brought that up on the call.