Netflix Shares Dip as CFO’s Remarks Lead to Cautious Outlook:

Netflix (NFLX) experienced a stock decline of 2% on Thursday, following a 5% fall the day before. This comes in the aftermath of statements from CFO Spencer Neumann during Bank of America’s Media, Communications, and Entertainment Conference.

Neumann provided insights into the company’s operation but raised eyebrows with his remarks on the expected margins. While margins once soared at 21%, Neumann forecasts them to stabilize between 18% and 20%, slightly below current market predictions.

However, he remains optimistic about future margins, highlighting strategies like clamping down on password sharing and introducing ad-supported offerings. Yet, he cautioned that establishing a new advertising venture would require time. “Building an ad business from scratch has its challenges. There’s much ground to cover,” Neumann commented.

He stressed the necessity to expand the scope of Netflix’s ad-supported tier. “Advertisers seek expansive solutions, which remains our primary focus, followed by improving monetization,” he shared. Although precise numbers weren’t disclosed, Neumann expressed satisfaction with the rate of new subscribers for the ad tier. Interestingly, he noted a trend towards premium plans among those users moving away from shared accounts.

Discussing the ad-tier’s performance, Neumann mentioned, “While our ad tier is gaining traction, it isn’t dominant given our diverse plan offerings. More subscribers seem to gravitate towards ad-free options.”

Furthermore, Neumann expressed concern over the persistent Hollywood strikes after recent proposals from studios were declined. Highlighting its impact on storytelling and the industry, he emphasized, “Collaboration with writers, producers, directors, and actors is paramount. We’re keen to resume normalcy and foster this partnership.”

Given Neumann’s statements, analyst Jeffrey Wlodarczak of Pivotal Research adjusted his Q4 average revenue-per-user growth predictions from 4% to 2%. He also revised the Q4 revenue projection from $8.89 billion to $8.73 billion. Wlodarczak attributed these changes to the shift in strategy to capitalize on non-paying households. Nonetheless, he upped his free cash flow prediction by $500 million to $6 billion, considering the strikes.

Despite the revisions, Wlodarczak retains a Buy rating on Netflix shares, sticking to his $600 price target, the highest on record.

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Netflix Shares Dip as CFO’s Remarks Lead to Cautious Outlook:

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