- Potential upside for Netflix subscribers but challenges are around the corner
- Tesla price cut outlook front and centre
- Both will announce earnings on Wednesday 18 October
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:
Netflix
“Netflix could be about to surprise on the upside with its quarterly subscriber numbers. Early trends have suggested that subscriptions have stabilised following the spikes seen when paid sharing was introduced. General engagement should also have seen a boost from the return of fan favourites, including Sex Education and Virgin River. However, sentiment towards Netflix has taken a knock in recent trading sessions as investors brace for the streaming giant’s update, which could hide some difficult truths.
At some point, broader revenue growth is going to need to shine through – rather than purely relying on incremental increases from subscription price increases. The elasticity of Netflix’s customer base is relatively robust, but there is a limit and pushing too far will cause demand to snap. This is where advertising comes in, and the new ad-supported tier is seeing expectations dimmed.
It will also be important to understand how seasonal trends have shaped up, with the September back-to-school season usually triggering a slowdown. This isn’t an issue on its own but it will be crucial to monitor if changes in behaviour have gone further than something that can be explained by schools opening back up.
Churn levels are likely to have increased too, which is an unhelpful development. Investors will want to hear about plans for content spend – an increase in this area could spook investors if it appears the group’s having to continuously bloat the budget in order to keep, rather than grow, market share.”
Tesla
“Tesla’s price cuts are driving confusion and uncertainty. While the decision to bang discount stickers in in the window can help stoke demand, the full extent of how deep cuts will need to be to propel meaningful demand uplifts remains unclear. The potential dent to margins could also be problematic, despite some lower costs including around lithium.
With this in mind, the outlook will remain front and centre. Investors want to know whether a weakening economic outlook and rationalisation of consumer spending have the ability to upend volumes, which will send profits into reverse. Bigger and cheaper rivals, especially in China are becoming more established so there’s work to be done to make this narrative more compelling for Mr Musk’s business.
The market value of Tesla has more than doubled so far this year, so expectations are high. An underwhelming answer to any of the open questions could send a jolt through Tesla’s chassis.”
