As the streaming landscape continues to evolve, all eyes are on Netflix (NFLX) as it prepares to report its fiscal third quarter earnings on Thursday, October 17, 2024, after the market close. The streaming giant finds itself at a critical juncture, with its stock trading near all-time highs and analysts keenly anticipating potential announcements that could shape the company's future trajectory.
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Analysts' consensus estimates for Q3 2024:
- Revenue: $9.78 billion (Netflix guidance: $9.73 billion)
- Earnings per share: $5.16 (Netflix guidance: $5.10)
- Net subscriber additions: 4.5 million
Key Focus Areas
- Subscriber Growth: Investors will be watching closely for subscriber numbers, especially as the company plans to phase out this metric in 2025. The market expects 281.5 million total subscribers.
- Ad-Supported Tier Performance: While not expected to be a primary revenue driver in 2024-2025, progress in this area will be scrutinized. Analysts anticipate acceleration in ad tier revenue contribution towards year-end and into 2025.
- Potential Price Hikes: The market is speculating about possible price increases, given Netflix's recent content investments and relatively stable pricing in recent years.
- Content Strategy: Updates on high-profile content like "Squid Game 2" and new ventures into live sports (NFL Christmas Day games, WWE Raw) will be of interest.
- International Growth: With mature markets potentially saturating, focus may shift to growth opportunities in international markets.
Netflix approaches this earnings report with considerable momentum. The company's shares have surged approximately 45% year-to-date, recently touching an all-time high of around $730 before settling near $705. This impressive run has pushed Netflix's market capitalization to $310 billion, reflecting investor optimism about the company's growth prospects and dominant position in the streaming industry.
Financial expectations
Implied volatility after earnings. Source: Bloomberg
For the third quarter, analysts are expecting Netflix to report revenue of $9.78 billion, slightly above the company's own guidance of $9.73 billion. Earnings per share are projected to come in at $5.16, also edging past Netflix's forecast of $5.10. These figures, if achieved, would represent significant year-over-year growth and underscore the company's ability to monetize its vast subscriber base effectively. Implied 1 day move after earnings report is 8.09% with average surprise of +25,95% for EPS. Today it is important to watch will the company beat $5.16 EPS.
Subscriber growth and pricing strategy
Speaking of subscribers, this metric remains a crucial focal point for investors, despite Netflix's plans to phase out quarterly subscriber reporting in 2025. Analysts anticipate the company will report total subscribers of around 281.5 million for the quarter. This number is particularly significant as it will provide insights into the lingering effects of Netflix's crackdown on password sharing, implemented in May 2023, and the growth of its ad-supported tier.
The ad-supported tier, introduced less than two years ago, is another area of intense interest. While Netflix has stated that advertising revenue isn't expected to be a primary growth driver in 2024 or 2025, analysts will be looking for signs of progress in this arena. The company reported a 34% growth in advertising memberships in the previous quarter, and any acceleration in this trend could be viewed positively by the market.
Pricing strategy is likely to be a hot topic during the earnings call. Given Netflix's recent investments in high-profile content and live sports rights, many analysts speculate that the company may be preparing to announce price increases. Netflix's last significant price hike for its standard plan occurred in January 2022, and the market will be eager to hear any hints about future pricing moves.
Content strategy
Content remains king in the streaming wars, and Netflix's slate for the upcoming year is robust. Investors will be keen to hear updates on highly anticipated releases like "Squid Game 2" and the company's foray into live sports with NFL Christmas Day games and WWE Raw. The success of these initiatives could play a crucial role in justifying Netflix's premium valuation and fending off competition from rival streaming services.
Analyst sentiment
While many analysts maintain a bullish outlook on Netflix, citing its leadership position and growth potential, some voices urge caution. The stock's current valuation, trading at about 33 times forward earnings, has led some analysts to question whether the company can sustain the growth rates needed to justify this premium. Skeptics point to potential headwinds such as market saturation in mature regions and the need for substantial subscriber growth or significant price increases to meet long-term revenue targets. From 63 recommendations, 43 are ‘buy’ with highest price of $900, 17 ‘hold’ and 3 ‘sell’ with lowest price of $500. 12-month average price target is $725.26, which implies 4.4% upside to current market price.
Stakes and expectations
As Netflix prepares to report, the stakes are undeniably high. A strong earnings report could further cement the company's position as the streaming leader and potentially drive the stock to new heights. Conversely, any disappointment in key metrics or lack of clarity on future growth drivers could lead to a reassessment of the stock's lofty valuation.
Investors and analysts alike will be parsing every detail of Netflix's report and subsequent earnings call, looking for clues about the company's strategy to maintain its growth trajectory in an increasingly competitive streaming landscape. With its stock near all-time highs and expectations running high, Netflix's Q3 2024 earnings report promises to be a pivotal moment for the company and the broader streaming industry.
Chart (Daily interval)
The price has successfully defended the 23.6% Fibonacci retracement level. RSI shows bearish divergence, with MACD giving a strong sell signal. For bears to regain control the resistance at both 23.6% and 38.2% Fibonacci retracement level must be broken. The level of $661.26 perfectly aligns with implied move of over 8%.
Source: xStation
