Revving up the engines for the upcoming earnings season, investors are eying the performance of Netflix (NASDAQ: NFLX). The streaming giant has been riding a rollercoaster of market sentiment in recent times, with shares nearly doubling in the past year, albeit seeing a more modest 45% surge in 2024. A substantial 35% jump in the latter part of the previous year spurred initial optimism, driven by an exceptional third-quarter report.
As the anticipation mounts, Netflix will step onto the earnings season stage early this year, unveiling its third-quarter financials after the market closes on Thursday. Will this be another blockbuster performance, or has the hype built too high? With Netflix’s stock hitting new record highs, only a robust financial showing will be able to sustain this upward trajectory.
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The Great Expectation Game
In a mixed bag of guidance offered in mid-July, Netflix projected a 14% increase in revenue to $9.7 billion for the third quarter, signaling a slight dip from the 17% year-over-year growth it achieved in the prior quarter. Delving into the nitty-gritty of its financials, Netflix aims to considerably enhance its margins. The company foresees net income skyrocketing by 33% to $2.7 billion, translating to $5.10 per share. Analysts, meanwhile, have set their sights slightly higher, eyeing a profit of $5.12 per share on revenue approaching $9.8 billion.
Against the backdrop of a whopping 98% increment in the stock price over the last year, Netflix finds itself in a different valuation realm. Despite currently trading at 37 times this year’s earnings, investors rue not seizing the opportunity a year back when the forward earnings multiple was considerably lower. If Netflix can sustain its bottom-line outperformance relative to modest revenue growth, the growth story might still have more acts to unfold.
The Winds of Change
Embracing change unabashedly, Netflix has been a trendsetter in the entertainment realm. A couple of years back, it boldly introduced a more affordable ad-supported plan, shaking up the market. The crackdown on password sharing further exemplified Netflix’s willingness to blaze new trails. By emulating traditional TV scheduling, Netflix has adopted a strategy of staggering releases of popular shows, compelling viewers to anticipate each episode, akin to the days of appointment TV viewing.
Looking ahead, Netflix announced plans to revamp its investor reporting by discontinuing subscriber numbers in 2025. Shifting focus to revenue growth and incorporating ad revenue from cheaper plans, Netflix aims to adapt to the evolving landscape. The upcoming inclusion of separate charges for additional users residing elsewhere will blur traditional subscriber metrics. As the business model evolves, so too will the metrics, commencing from the first quarter of the upcoming year.
The market seems unperturbed by Netflix’s strategic shifts, with analysts raising their price targets significantly in the run-up to the impending financial disclosure. These upward revisions signal a bullish sentiment, hinting at heightened market expectations for Netflix’s impending disclosure.
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One cannot help but ponder about the intrigue surrounding Netflix. With its ever-evolving strategies and the market’s insatiable appetite, the curtain rises for another act in the saga of this entertainment behemoth.
