As earnings season unfolds energetically, the financial world braces itself for revelations from industry behemoths such as Meta Platforms and Netflix. Following their most recent financial disclosures, both companies faced a tumultuous ride as their stock prices experienced a notable retreat, erasing part of their year-to-date gains. This raises a crucial question – are investors presented with a ripe opportunity amidst the post-earnings frenzy, or is caution the prudent choice?
Netflix Performance Unveiled
Netflix outperformed the Zacks Consensus EPS estimate by 17% while also edging past sales expectations marginally, showcasing significant growth compared to the same quarter last year. The streaming giant reported a remarkable 16% surge in total subscribers year-over-year. However, a surprising twist came with the announcement that Netflix will cease to report quarterly membership numbers from the first quarter of 2025, triggering immediate market reaction.
Total subscribers were reported at 269.6 million, reflecting a 16% jump year-over-year. Still, the real surprise in the quarterly release was that the company will no longer report quarterly membership numbers starting next year in 2025 Q1, likely explaining the knee-jerk reaction post-earnings.
Netflix reported $2.1 billion in free cash flow and witnessed operating margin growth to 28.1% year-to-date. Encouragingly, the company maintained its free cash flow outlook for the fiscal year 2024 at $6 billion and initiated share repurchases.
Post-earnings, the company observed an upsurge in earnings expectations, instilling short-term optimism. Netflix currently holds a Zacks Rank #2 (Buy).
The prevailing growth outlook for Netflix appears promising, with consensus forecasts for the current fiscal year projecting a 50% earnings increase on a 15% revenue surge. The stock’s ‘A’ grade for Growth Style Score further cements its growth trajectory.
Insights into Meta Platforms Performance
Technology titan Meta Platforms exceeded the Zacks Consensus EPS estimate by 9% and modestly surpassed sales projections by 0.5%. The company’s notable enhancements in operational efficiencies propelled its profits, registering an 80% surge in earnings compared to the previous year.
Despite these achievements, the market backlash post-earnings can be linked to Meta’s announcement of heightened capital expenditures for the ongoing fiscal year. The company revised its CapEx range to $35 – $40 billion from the previous $30 – $37 billion, aiming to accelerate its AI infrastructure investments.
Analysts anticipate positive revisions, albeit investors should brace for forthcoming adjustments in response.
Meta Platforms’ advertising segment continues to be a powerhouse, evidenced by a 6% rise in average ad prices and a 20% surge in ad impressions across its app family. Moreover, the company’s operating margin soared to 38%, reflecting enhanced profitability compared to the prior period.
The Verdict
The unveiling of corporate results during earnings season is a riveting affair, shedding light on the inner workings of corporations. While major banks have largely reported positive outcomes, Meta and Netflix faced market turbulence post-earnings despite strong quarterly showings.
Earnings estimate upgrades post-results signal optimism for Netflix. Although Meta’s increased capital expenditure irked some investors, the stock remains an attractive long-term prospect for AI enthusiasts.