Netflix (NFLX) 3rd Quarter Earnings: What to Expect

Large Netflix logo displaying on a tablet atop a slate surface
Credit: Kaspars Grinvalds - stock.adobe.com

Netflix (NFLX) is set to report third quarter fiscal 2020 earnings results after the closing bell Tuesday. You would be hard-pressed to find another company not named Zoom (ZM), that is capitalizing more on the stay-at-home economy in which we live.

The streaming giant, which has seen its stock surge more than 10% over the past month, has risen 65% year to date, compared to the 8% rise in the S&P 500 index. Yet even with such a strong performance, it still seems as if Netflix has moved under the radar so far in 2020. Understandably, investors want to know how much more runway Netflix has left, particularly with its market cap now near $240 billion and the stock trading at 62 times forward earnings estimates.

While some have argued that any good news for Netflix is already priced into the stock, a case for more upside can also be made. Indeed, the company didn’t excite investors with its second quarter miss on customer subscription totals, reporting 10 million net new subs, compared to estimates for 13 million. However, the 10 million it did deliver was sill 3 million more than its own guidance. What’s more, Netflix’s Q2 revenue rose 25% year over year to $6.15 billion, topping consensus estimates of $6.08 billion.

The effects of the coronavirus pandemic, namely shelter-in-place orders, has made Netflix even more an essential part of people’s lives. As such, I think there is still a lot to like with this story, particularly as Covid cases continue to rise, suggesting more shelter-in-place restrictions could be underway. The company guided for only 2.5 million new subscribers in the just-ended quarter, which is 50% below consensus estimates. This tells me that Netflix has put itself in a position for a strong beat on Tuesday.

For the quarter that ended September, Wall Street expects Netflix to earn $2.13 per share on revenue of $6.38 billion. This compares to the year-ago quarter when earnings were $1.47 per share on $5.24 billion in revenue. For the full year, ending in Decembers, earnings are projected to increase 50% year over year to $6.21 per share, while full-year revenue of $24.9 billion would mark an increase of 23.6% year over year.

Increased competition not only from the existing players such as Amazon (AMZN) and Hulu, but also from new platforms from Disney (DIS) and Apple (AAPL) has become a growing concern among investors. NBCUniversal's Peacock, which launched in streaming platform three months ago, has secured some 17.2% of all new streaming subscriptions in the third quarter, according on to media consulting-group Kantar.

Netflix, meanwhile, was in sixth place in the same study. To be fair, that’s also because Netflix which pioneered the streaming industry, has already penetrated much of U.S. market. For some time, the company has forecasted to reach its addressable U.S. market between 60 million and 90 million households. It is now at around 73 million as of the second quarter.

All of that said, Netflix’s content has been its biggest asset over its streaming competitors. And as long as the company has that strong sale of content Netflix is well-positioned to implement price increase which bodes well not only for its growth, but also for its stock. That’s one of the main signals analysts will look for on Tuesday.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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