Market optimism prevails as Netflix’s Q1 earnings release approaches. Here is what NFLX stock investors should know.
- Netflix’s Q1 earnings release on April 18 is highly anticipated amid divergent analyst views and the stock’s recent surge.
- Consensus optimism surrounds expectations of significant revenue and earnings growth, despite volatile post-earnings history.
- Analysts differ on Netflix’s future trajectory, with bullish forecasts emphasizing long-term success factors and bearish concerns over valuation metrics.
The Q1 2024 earnings season kicked off recently with several financial companies having already reported their results, including Goldman Sachs (GS) and Morgan Stanley (MS). However, this week, the market is eagerly anticipating the release of Netflix‘s (NFLX) first quarter earnings on April 18th.
Having surged just over 86% in the past 12 months and trading at just over 50 times trailing earnings, Netflix stock are among the market’s most hotly debated bulls vs. bears stories.
What Does Q1 Hold for Netflix Stock?
Netflix is a stock that tends to be quite volatile post-earnings, with earnings often shifting the market sentiment. In many of the recent quarters, Netflix has pleasantly surprised the market with higher-than-expected EPS, but that’s not usually the main driver.
There have been quarters like the last one (Q4 2023) in which the company disappointed in terms of EPS, yet the stock rose, and others where it exceeded EPS expectations, but the stock fell (such as in Q1 2022).
The point is that the market considers other factors that are even more crucial to the thesis, such as subscriber additions and the efficiency of its initiatives demonstrating expansion and monetization of its user base.
Source: Koyfin
The consensus is expecting revenues of $9.3 billion, representing a year-over-year change of 14% and a quarter-over-quarter change of just over 5%, indicating some optimism about the business.
Another factor illustrating this optimism is margins. Consensus anticipates an adjusted EBITDA margin of 28.2%, compared to 23.0% for the same period last year and 18.8% for Q4. Additionally, an adjusted EPS of $4.54 is expected, representing a year-over-year change of 57% and a quarter-over-quarter change of 115%.
One proxy we can use to gauge Netflix’s success is Nielsen data. While not directly reflecting the company’s revenue growth, recent months have shown that Netflix not only remains the most relevant streaming platform (excluding YouTube) but has also increased its market share, reaching 8.1% in March 2024.
Source: Nielsen
What The Analysts Expect For Netflix Stock?
As mentioned, Netflix stock sparks some divergence among analysts. Despite the overall optimistic consensus, ratings on TipRanks result in a ‘moderate buy’, with 26 out of 40 analysts recommending ‘buy’, 13 ‘hold’, and 1 ‘sell’.
One of the bulls on this thesis is Morgan Stanley, forecasting 25-30% earnings growth for the company. The bank highlights Netflix’s vastly different profile from its media competitors as a positive factor.
Furthermore, the bullish view hinges on the long-term confidence that the company will succeed in its initiatives and expand its revenues at a faster pace than its CapEx. Ben Swinburne has set a price target of $700 for Netflix stocks, representing 13% upside.
Based on the company’s initiatives such as ad inclusion and crackdown on password sharing, coupled with substantial growth potential, Macquarie analyst Tim Nollen also holds an optimistic view, with a price target of $685 for Netflix.
Meanwhile, Bryan Kraft from Deutsche Bank takes a more conservative stance. Despite raising the price target from $550 to $525, this still represents a downside of just over 11%. With this bearish view, the analyst points out that the stock is trading at a 2025 P/E of 30x. For further Netflix stock appreciation, there would need to be upward revisions in projections.
The Bottom Line
On average, the market is optimistic about Thursday’s results, as both the top and bottom lines are forecasted to rise aggressively.
However, NFLX stock is traditionally volatile around earnings. This is because various scenarios can lead analysts to change their views, including expectation for near-term subscriber growth or the success of the company’s monetization efforts.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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