Will Netflix boost weaker sentiments on Wall Street? 📊

Netflix (NFLX.US) will show its Q4 2022 results today, after a session on Wall Street. Good results could improve investor sentiment; so far, the results of US companies have not given bulls reason to cheer. Here are the forecasts:

Revenue: $7.79 billion (1.5% y/y growth) according to (Refinitiv)

Earnings per share (EPS): $0.57 (58% decrease y/y and 82% decrease m/m) (Refinitiv)

Operating profit: $362.4 million (43% decrease y/y) (Bloomberg)

Number of subscribers: 230.25 million (up 4.5 million q/q) (Netflix,Bloomberg)

Analysts' expectations are higher than those of Netflix itself, which in the previous one indicated that it expected $7.78 billion in revenue and $0.36 in earnings per share. The number of new subscribers could be important to the markets' reaction. Netflix's strong performance over the previous quarter would help bolster confidence that growth will accelerate, while a slowdown will potentially fuel fears that the rebound on Wall Street was only temporary.

The company had forecast in Q3 that it expected growth of 4.5 million subscriptions in the latest quarter, so a drop below that could weigh on Netflix's stock. In the previous quarter, the company positively surprised by increasing subscribers by 2.4 million against 1 million forecasts although it had been reporting an outflow of subscribers in the first half of 2022. In the record fourth quarter of 2021, Netflix added 8.2 million subscribers. Source: Bloomberg, Cityindex

Growth catalysts

• Subscriber growth in Q4 will depend mainly on consumer reaction to a new, cheaper subscription program with ads launched in November. The bar has been hung low by analysts so it may be easier for the company to meet expectations;
• Netflix itself has not given many optimistic signs in recent months by issuing cautious forecasts - it did the same in Q2 when it projected surprisingly low subscriber growth perhaps hoping for a euphoric reaction from the markets which it ultimately achieved;
• Since the company generates more than 60% of its revenue outside the US, results will be positively affected by the weaker US dollar, which was still weighing on Netflix in Q3 2023. Bloomberg Intelligence indicates that the movies Wednesday and Glass Onion (a blockbuster release according to CNET) could help the company surprise the market.

Recession still a threat

• Less optimistic analysts point to falling app downloads and lower viewership numbers. Macro data shows that consumer sentiment was weaker at the end of last year so it remains uncertain whether the new, cheaper model with ads has caused a spike in subscribers;
• There have also been recent media reports according to which the company terminated contracts with advertisers after failing to secure enough viewers, suggesting a sluggish start to the new subscription model;
• Already during the Q3 2023 earnings call, CFO Spencer Neumann indicated that despite the slow recovery, the company is not growing as fast as management would like. According to Goldman Sachs, a global recession could push Netflix's business into trouble and force it to cut margins. Nevertheless, Wall Street still believes Netflix will add 14 million paying subscribers in 2023 and increase revenue.

Netflix stock (NFLX.US), D1 interval. Looking at Netflix's stock, we can see that the company managed to recover much of its losses in 2022 and eventually lost about 50% of its valuation. The price is located between the 23.6 and 38.2 Fibonacci abolition of the downward wave initiated in the fall of 2020 so the levels of $290 and $370 per share could potentially determine the range of a positive or negative market reaction. The SMA100 (black) and 200 (red) averages formed a 'golden cross' formation in mid-December, which may support the bulls. Source: xStation5