What To Expect From Netflix’s Q3 Results?

Netflix (NASDAQ:NFLX) is slated to report its Q3 2022 results on October 18th.  We estimate that Netflix’s revenue will come in at about $7.9 billion for the quarter, marginally ahead of the consensus estimate of about $7.84 billion. This would mark year-over-year growth of about 5.5%, although it would be down from close to 16% growth in the same quarter last year.  We estimate that earnings will stand at close to $2.15 per share, compared to a consensus of $2.13 per share. So what are some of the trends that are likely to drive Netflix results? See our interactive dashboard analysis on Netflix Earnings Preview for more details on how Netflix’s revenues and earnings are likely to trend for the quarter.

Netflix has guided that it could add about 1 million subscribers over the quarter, compared to a loss of 970,000 subscribers in the previous quarter, likely driven by an improving content slate that included the second batch of episodes of Stranger Things season 4. However, this would still mark a decline from the 4.4 million subscribers the company added in Q3 2021. There are multiple trends impacting Netflix, including the easing of the Covid-19-related tailwinds and mounting competition with the likes of Apple, Disney, and Paramount gaining much traction with their respective streaming products. It’s also possible that high levels of inflation are impacting subscriber growth, particularly in lower-income markets, where rising prices could be hurting discretionary spending. Foreign currency headwinds are likely to weigh on the company’s earnings, considering that Netflix derives about 60% of its revenues from overseas with the dollar rising considerably over the last year (the dollar index is up 18% over the last 12 months). Netflix margins could also see some pressure due to slower revenue growth and foreign exchange pressures. Over Q2, operating margins came in at 19.8%, down from about 25% in the year-ago quarter.

Now, despite the slowdown, we think Netflix stock remains undervalued. The stock has declined by about 62% year-to-date and trades at around levels last seen in about 2017. However, Netflix has made considerable progress since then. For example, the company has more than doubled its subscriber base since 2017, despite hiking prices four times over the period, with its churn rates remaining the lowest in the streaming business. The stock now trades at just about 20x projected consensus 2023 earnings down from levels of over 90x prior to the pandemic. Netflix is also slated to launch its new ad-supported offering in the coming months, and we believe that this could help it revive subscriber growth and improve its monetization.  We remain positive on Netflix stock, with a price estimate of $317 per share, which is 40% ahead of the current market price.  See our analysis Netflix Valuation: Expensive or Cheap for more details on what’s driving our price estimate for Netflix. Also, check out on the analysis of Netflix Revenue for more details on how Netflix revenues are trending.

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