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Netflix is getting ready to body-slam the competition with live sports-entertainment content

By Jon Swartz

For now, the password-sharing crackdown and advertising are likely to carry the day for Netflix, whose global membership stands at 260 million

Will the WWE help Netflix Inc. body-slam its competitors? Will Mike Tyson knock them out?

Earlier this year, Netflix (NFLX) announced a 10-year, $5 billion deal to carry the WWE starting in January 2025, meaning the sports-entertainment juggernaut - which hasn't been hotter in two decades - could soon have millions of viewers in a choke hold every week. And in July, the streaming service will carry a bout between former heavyweight boxing champion Tyson and social-media star Jake Paul.

But first, the company will report earnings for the latest period, and expectations are as high as the WWE's (TKO) current popularity for Netflix's first-quarter financial results on Thursday. Analysts polled by FactSet are expecting earnings of $4.51 a share on revenue of $9.27 billion.

Analysts are primed for substantial first-quarter gains in subscriptions from compelling content, a password-sharing crackdown and a low-cost advertising-supported plan unfurled in late 2022.

Wedbush Securities analyst Michael Pachter, in forecasting worldwide net subscriber additions of 8.5 million in the first quarter, maintained his outperform rating, with a price target of $725.

UBS analyst John Hodulik believes Netflix is the main beneficiary of "industry rationalization" and predicts strong first-quarter results due to paid sharing. He forecasts 7.8 million net subscription additions, compared with 4.3 million in the prior quarter and 1.8 million in the same quarter a year ago.

In raising his price target on Netflix shares to $700 from $600, Morgan Stanley analyst Benjamin Swinburne heralded Netflix's quality content that is being developed and produced outside the U.S., as well as a raft of "break-out" hits this year, led by TV series "Fool Me Once" and "Avatar The Last Airbender" and movies such as "Leave The World Behind" and "Society of the Snow."

In recent weeks, analysts from TD Cowen and J.P. Morgan validated the short-term optimism. Both raised price targets on Netflix, based on higher subscriber estimates. TD Cowen raised its price target to $725 from $600, while J.P. Morgan hiked its target to $650 from $610.

TD Cowen's John Blackledge now expects paid first-quarter net additions of 5.11 million, roughly in line with the consensus view, "reflecting continued paid sharing momentum," he wrote.

The company's stock has been on the upswing so far this year, gaining 25% to $607.15, while the S&P 500 SPX has advanced 6%. Netflix is forecasting first-quarter subscriber growth below the seasonally strong fourth-quarter gain of 13.1 million but better than the 1.7 million increase recorded for the first quarter of 2023.

Netflix's recent momentum could accelerate as the company "caters to WWE's large, multigenerational fan base and leverages live sports entertainment," Jason Moser, senior analyst and lead adviser at the Motley Fool, said in an email. "It also likely strengthens Netflix's burgeoning ad-supported tier, given the consistent weekly live content throughout the year."

Mark Vena, founder and CEO of SmartTech Research, is watching Netflix's share of households with monthly spending on streaming of more than $100, noting that the share of households that spend $20 or less is declining.

"I would like to hear more commentary on how Netflix intends on following up the upcoming Jake Paul-Mike Tyson fight in July," Vena said in a message. "I would like to see more commentary on the whole password-sharing crackdown. ... Is that now complete?"

Streaming rivals like Apple Inc. (AAPL), Walt Disney Co. (DIS), Inc. (AMZN) and Comcast Corp. (CMCSA), by contrast, are collectively spending billions of dollars on live sporting events from the four major North American sports leagues and the Olympics.

For now, the password-sharing crackdown and advertising will likely carry the day for Netflix, whose global membership is 260 million. But what of the future beyond live sports programming?

"I'd expect to see Netflix and others continue to unbundle their services, such as by genre or series, launch cheaper offerings that perhaps cap the number of hours you get, or go the other way and start to bundle other streaming services into a single monthly offering," Zuora Inc. (ZUO) CEO Tien Tzuo said in an email.

-Jon Swartz

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.


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04-16-24 1325ET

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