Investor expectations are high as the stock approaches record levels.

Netflix (NFLX) reported its fiscal second-quarter earnings on Thursday after the market closed — but the company will once again have a big hurdle to overcome as the stock nears record highs.

“For NFLX stock, there is a lot of price to be made but we remain bullish given the significant growth potential ahead,” Morgan Stanley analyst Benjamin Swinburne wrote in a note ahead of the report.

Investors have hailed the company’s push into sports and live events. Meanwhile, its advertising segment continues to gain momentum. As a result, its shares are up about 33% year-to-date.

At the close on Wednesday, Netflix stock was trading at $647.46 and was little changed ahead of Thursday’s results. Shares closed at a record high of $691.69 on Nov. 17, 2021.

But the stock’s recent surge has raised some concerns on Wall Street.

“We are cautious ahead of the company’s Q2 2024 earnings release. We maintain our Neutral rating and $660 price target,” wrote Jason Bazinet, an analyst at Citi.

Here’s what Wall Street expects from the report, according to Bloomberg Consensus estimates:

• he won: $9.53 billion (Netflix guidance: $9.49 billion) vs. $8.19 billion in Q2 2023

• Earnings per share (EPS): $4.74 (Netflix guidance: $4.68) vs. $3.29 in Q2 2023

• Net Subscriber Additions: 4.7 million vs. 5.9 million in Q2 2023

In May, Netflix announced it had won the rights to stream two NFL games scheduled to air on Christmas Day as part of a three-season deal. The company also told advertisers in its May presentation that its ad category had reached 40 million monthly active users worldwide — a big jump from the 15 million the company revealed in November and an increase of 35 million users compared to the same period last year.

The growth comes as the streaming service has raised the prices of its ad-free subscriptions in a bid to lure more users to its ad-supported offerings. Netflix’s crackdown on password sharing has also helped drive overall growth and boost the platform’s overall subscriber base, with more than 9 million new users added in the first quarter.

But the upward trajectory hasn’t been entirely smooth. In April, Netflix announced it would stop reporting subscriber numbers at the start of next year, raising concerns about long-term subscriber growth and sending its shares tumbling.

“Netflix also has bigger competitors to consider, especially as its business matures over the next few years,” Swinburne warned. “Obvious examples are Alphabet’s YouTube and Amazon’s Prime Video. Other sources of consumer time, such as social media, which is increasingly populated by short-form video, are perhaps less obvious.”

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“Finally, there is a long-term risk that its profit margins are being increased by outsized returns, [a new army] “Or several of them might come together,” he said. “In that regard, the potential for AI tools to dramatically lower the barriers to entry into the premium professional video space comes to mind.”

While the ad category has seen early success, analysts cautioned that the initiative still has a long way to go. Jessica Reif Erlich, an analyst at Bank of America, said her team views the ad as “a long-term story and [does] “We do not expect a material contribution to revenue until 2025.”

She pointed to the abundance of new inventory as several ad-supported services are launched by competitors, along with a “mixed advertising environment backdrop.” However, the analyst reiterated her buy rating and raised her price target to $740 per share, up from $700 previously.

“We are raising our target multiple to reflect continued momentum in the core business. Backed by its global brand, world-leading subscriber base, position as an innovator and increased visibility into growth drivers, we believe Netflix will continue to outperform competitors,” she added.

Alexandra Channel She is a senior reporter at Yahoo Finance. You can follow her on X @Ali_Canal, LinkedIn, You can email her at [email protected].

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