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On Wednesday, speaking at an investor conference, Spence Neumann, Netflix CFO, said he doesn’t think it’s “really prudent” for the company to keep growing at three percentage points of margin per year, adding that it is best to grow operating margin with revenue. Netflix shares fell following the conference, closing the session down over 5%.
“Following miniscule Benchmark revisions off adjustments for real-time FX movements, we have operating margin improving by 2.0% this year, 2.1% in 2024, and 1.8% in 2025,” the analysts said in their memo to clients.
“Neumann also suggested only muted 3Q23 and 4Q23 ARM improvements. 4Q23 revenue growth may barely scrape above 10% versus some competitor estimates calling for 12-13% momentum or even better – with our estimates dampened by current spot FX estimates implying MA 4Q23 currency headwinds will be an albatross relative to the current quarter,” they added.
The analysts added that Neumann’s comments imply no dramatic step function benefits for 2H23 and even 2024.
“In assessing risk/reward on NFLX we continue to emphasize a matrix assessing share price potential off 2033 installed base and long-term operating profit margin. Our base case allows for a 415M+ end of forecast global member base versus 238M presently and an operating margin slightly above 30% versus 2023 guidance for 18% to 20%,” they said.
