Investors are sitting on the edge of their seats, eagerly awaiting the unveiling of Netflix (NASDAQ: NFLX) performance this earnings season. Over the past year, shares of the premier premium video service have experienced a meteoric rise, nearly doubling in value. However, the ascent has slowed down in 2024, with a modest 45% increase. The stock took flight towards the end of the previous year, boosted by an exceptional third-quarter report.
Netflix always takes the spotlight early in the earnings season, and this year is no exception. After the market closes on Thursday, the stage will be set for the unveiling of this year’s third-quarter financials. Will shareholders be treated to another blockbuster showing, or have expectations reached unattainable heights? With Netflix stock achieving yet another record high on Friday, it will require a stellar financial performance to maintain the momentum.
High Expectations and Forward Projections
The guidance provided by Netflix back in mid-July presented a mixed bag. The streaming pioneer anticipated a 14% revenue increase to $9.7 billion for the September quarter, a slight deceleration from the 17% year-over-year growth witnessed in the second quarter. However, the real magic unfolds further down the income statement.
Netflix aims for a significant enhancement in margins. Its summer forecast suggested that net income would surge by 33% to $2.7 billion, equating to $5.10 per share. Over the past three months, analysts have slightly upped the ante. They now project earnings of $5.12 per share on revenue approaching $9.8 billion.
The stock’s impressive 98% surge over the last year paints a different picture. With Netflix not exactly a bargain at 37 times this year’s earnings, investors may rue not jumping onboard a year ago when the forward earnings multiple was more attractive. As long as the bottom line continues to outperform modest top-line gains, the rally could still have room to soar.
A New Direction for Netflix
Netflix is not one to shy away from change. Two years ago, it introduced a more affordable ad-supported plan. It launched a crackdown on password sharing last year and embraced the strategy of spreading out new seasons of popular shows, similar to traditional TV scheduling. If you found yourself up early on Wednesday catching the latest episodes of Love Is Blind, be prepared for a week-long wait for the finale.
Looking ahead, Netflix plans to introduce a new paradigm for investors. In April, it announced intentions to cease reporting subscriber numbers in 2025. The focus will shift to revenue growth, particularly with the integration of ad revenues from cheaper ad-supported plans. The delineation of subscriber numbers will blur as households opt to pay an additional $7.99 per month to include someone previously sharing their account but residing elsewhere. As the business model evolves, so will the approach to reporting subscriber metrics, beginning in the first quarter of next year.
The market appears receptive to the transformations at the forefront of streaming service stocks. Review the buoyant stock chart. Observe the analyst predictions. A notable five analysts have raised their price targets in the past week, positioning themselves ahead of Thursday’s financial disclosure. These adjustments are not trifling; they range from $40 to as high as $100 above their former targets.
Expectations are sky-high, and Netflix must aim higher to meet them.
An Opportunity Knocking Twice
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*Stock Advisor returns as of October 14, 2024