Netflix earnings on deck. It could be a lot harder to please investors this time around.

By Bill Peters

Earnings Watch: United Airlines and more banks also report

Netflix's stock has been on a tear over the past year, as the streaming platform gradually adopts the traits of the thing it once upended - a regular TV station. But when it reports first-quarter results on Thursday, it will likely have a far higher bar to clear to keep the momentum going.

Along with its own shows and movies, Netflix (NFLX) has rolled out ads. It has clamped down on password sharing. And after years of courting subscribers with a flood of new content, it has done a lot more recently to court investors, raising subscription prices and cutting spending, staff and programming, while still logging record subscriber additions.

It has also waded into one of the last remaining lifelines for basic and cable television - live sports - landing the broadcast for a boxing match between Mike Tyson and Jake Paul set for July, and WWE Raw starting next year. The results and conference call could offer early indications of viewer interest.

Investors, having factored in all of that, have sent Netflix's shares 80% higher over the past 12 months.

As the entertainment industry consolidates and tries to appease investors' demands for streaming profit growth, at least one analyst declared that Netflix had "won the streaming wars." However, it has no shortage of rivals - from the likes of Disney (DIS), Amazon (AMZN), Warner Bros. (WBD) and Paramount (PARA). Like the rest of the industry, it also faces bigger questions raised by last year's strikes, including compensation for writers and actors and the role of AI in films and shows.

In a note last month, Wedbush analyst Michael Pachter said Netflix still had lots of levers to expand sales, profits and free cash cash flow. But he added: "[W]e think it will be much harder for Netflix to impress investors in 2024 vs. 2023."

"Some of the growth drivers have been fully priced in, such as the password-sharing crackdown," he said. "We think there's still some benefit from that, but it's marginal and now expected. The ad tier has significant growth remaining, and is not yet accretive. Once it is, it can expand meaningfully over time and contribute handsomely to earnings growth. We think it will reach accretion this year, and should be the main growth driver in 2025."

Dan Morgan, an analyst at Synovus, said bigger questions for Netflix included how much growth it could still get out of paid sharing options and ads, how its pricing stacked up against rivals, and the outlook for the business further out.

"There is a debate among investors over the longer-term prospects for the business," he said. "While all agree the prior outlook for net adds and margins was likely too high, most still see this as a very attractive business over time."

This week in earnings

Of the S&P 500 index companies, 44, including six in the Dow Jones Industrial Average, will report quarterly results in the week ahead, according to FactSet. Outside of Netflix and an array of financial institutions, we'll get earnings from health-insurance giant UnitedHealth Group. (UNH), which has been hit by higher medical costs, a cyberattack, a report of an antitrust investigation, and concerns about the government's payments to insurers that provide Medicare Advantage plans. Elsewhere, results from railroad operator CSX Corp. (CSX) and trucking and logistics company J.B. Hunt Transport Services (JBHT) will offer an update on the state of shipping demand. Johnson & Johnson (JNJ) also reports.

The call to put on your calendar

United Airlines: After a pandemic-era crisis and the revenge travel that followed, travel demand appears to be fine. United Airlines Holdings Inc. (UAL), however, isn't. The airline, which reports quarterly results on Tuesday and holds its earnings call Wednesday, postponed its investor day to focus on a Federal Aviation Administration review of its safety standards, following a string of mishaps on flights in recent weeks. Amid delays in deliveries for Boeing jets, United has asked pilots to work less next month. The airline has said that it's "confident" in its business. But analysts and reporters will be on the lookout for cracks in its convictions.

The numbers to watch

Lots more bank results: When JPMorgan Chase & Co. reported quarterly results on Friday, Chief Executive Jamie Dimon said the consumer was still "strong," but said that geopolitical friction and "a large number of persistent inflationary pressures" still existed. If the nation's biggest bank is offering that kind of mixed diagnosis, what does it mean for the rest of the banking and finance sector?

Markets will get more answers next week, with results due from Goldman Sachs Group Inc. (GS), Bank of America Corp. (BAC), Morgan Stanley (MS), Discover Financial Services (DFS) and American Express Co. (AXP). Those companies will report as borrowing money gets harder and some consumers show signs of falling behind on bill payments, and as the commercial real estate industry suffers due to the rise of remote work.

Dimon said there were "some cracks" in the subprime auto market. JPMorgan's chief financial officer said it had seen "no meaningful improvement" in its portfolio for office real estate, although it hadn't gotten any worse. Citigroup Inc. (C), meanwhile, said on Friday that a soft landing for the economy was "increasingly likely."

"Expectations for these large financial institutions are relatively low, with the inverted yield curve and suppressed demand for credit weighing," Katie Nixon, chief investment officer of Northern Trust Wealth Management, said in emailed commentary on Friday.

"However," she added, "we always look to these earnings releases as canaries in a broader economic coalmine."

Steve Gelsi contributed reporting.

-Bill Peters

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

04-14-24 1001ET

Copyright (c) 2024 Dow Jones & Company, Inc.