Up 27% Year To Date, Will Q1 Results Drive Netflix Stock Higher?

Netflix (NASDAQ:NFLX) is slated to report its Q1 2024 results on April 18. We estimate that Netflix’s revenue will come in at about $9.3 billion for the quarter, marginally ahead of the consensus estimates of $9.27 billion and the company’s guidance of $9.24 billion.  This would also mark year-over-year growth of roughly 14%. We estimate that earnings will stand at $4.50 per share, roughly in line with the consensus. So what are some of the trends that are likely to drive Netflix earnings for the quarter? 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 been seeing a slew of tailwinds of late for subscriber growth and revenues as the company has been cracking down on password sharing while also building out its ad-supported streaming offering. Over Q4 2023, Netflix added 13 million new subscribers, beating Wall Street expectations, taking its total user base to a record 260.8 million paid subscribers. Netflix began offering the paid sharing option in the U.S. last Spring enabling users to share their accounts with people outside of their households for an additional $8 per month. This move is also adding to Netflix’s top line, as users outside primary households pay for new subscriptions or pay the additional fee to share accounts.

The ad-supported tier is also gaining traction enabling the company to attract more price-sensitive customers. In January, Netflix indicated that the plan had a total of 23 million global users, up from about 15 million in November 2023. The plan appears to offer a solid value proposition for customers, priced at $7 per month in the U.S., offering full-high definition video quality, the same as Netflix’s ad-free Standard plan. Moreover,  the ad-supported plan is to bring in more revenue per user than the company’s Standard plan, as incremental ad revenue more than offsets the discount Netflix offers on the ad tier. That said, Netflix could see its paid net additions trend down sequentially compared to Q4, considering typical seasonality following the holiday period.

Now, NFLX stock has witnessed gains of 15% from levels of $540 in early January 2021 to around $620 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period.
However, the increase in NFLX stock has been far from consistent. Returns for the stock were 11% in 2021, -51% in 2022, and 65% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that NFLX underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Communication Services sector including GOOG, META, and DIS, and even for the megacap stars TSLA, MSFT, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could NFLX face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

Although we think that Netflix stock could move slightly higher if it beats earnings, we believe the stock is overvalued. At the current market price of about $636 per share, Netflix trades at roughly 36x forward earnings, which is a bit expensive in our view. There have been concerns about the broader macroeconomic picture, which could weigh on players such as Netflix who are dependent on growing consumer spending. Netflix could also see subscriber growth cool, as the impact of its accelerated subscriber ads coming from the password-sharing crackdown and ad-supported tiers is likely to eventually stabilize.  We have a $502 price estimate for Netflix, which is 20% below the 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 the analysis of Netflix Revenue for more details on how Netflix revenues are trending.

[1] Returns as of 4/10/2024
[2] Cumulative total returns since the end of 2016

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