Shares of Netflix (NFLX) have been one of the better performing names in large-cap tech, rising almost 50% in the past six months, besting the 13% rise in the S&P 500 index, while also outperforming the Nasdaq-100.
The streaming pioneer is set to report first quarter fiscal 2023 earnings results after the closing bell Tuesday. With shares already rising more that 17% year to date, the market has seemingly regained confidence that the streaming giant can regain its growth momentum. But is there still a buying opportunity? While there was a noticeable revenue slowdown in its Q4 results, which rose just 1.9%, the company guided for Q1 revenue to re-accelerate to 4%.
In a Q4 letter to shareholders, Netflix management expressed confidence in their growth strategy, saying, "We believe we have a clear path to reaccelerate our revenue growth: continuing to improve all aspects of Netflix, launching paid sharing and building our ads offering.” The company’s growth initiatives have begun to pay dividends. Not only is the company’s efforts to grow its ad-supported tier working, the management has also implemented ways to crack down on password sharing.
Regarding the ad-supported tier, which was launched in twelve global markets in November, it exposes Netflix to an estimated $140 billion of brand advertising spending. Combined with the company’s upcoming content launches, there is a compelling case to remain invested in the stock. These assumptions will be answered when Netflix issues its guidance forecast for the next quarter and full year.
For the quarter that ended March, Wall Street expects Netflix to earn $2.85 per share on revenue of $8.17 billion. This compares to the year-ago quarter when earnings were $3.53 per share on $7.87 billion in revenue. For the full year ending December, Netflix’s earnings are projected to rise 15.67% year over year to $11.51 per share, while full-year revenue of $34.45 billion would mark an increase of 9% year over year.
At the depths of the bear market, analysts were readily comparing Netflix to competitors such as Disney (DIS) which is a well-diversified conglomerate with not only theatrical releases, but also cable assets and theme parks in addition to its Disney+ streaming platform. However, fast forward two quarters later, Netflix stock has escaped that comparison and nearly doubled from its 52-week lows, raising its market cap back north of $150 billion.
The company has done a solid job executing on the most-pressing ones, particularly the advertising-supported tier. Analysts Alicia Reese and Michael Pachter at Wedbush Securities conducted a Q1 survey which suggest that Netflix’s outlook remains bright. "We think Netflix made a great decision to launch an ad-tier, as growth had stalled in [U.S./Canada] and was heading toward full market saturation in EMEA," noted the analysts. Adding, “Even if ads aren't yet directly accretive, they should reduce churn and draw new subscribers which in turn should help boost free cash flow.”
In the fourth quarter, the company missed on both the top and bottom lines, reporting revenue of $7.85 billion, up 1.8% year over year, missing estimates by $3.4 million. Q4 adjusted EPS was 12 cents per share, which missed Street consensus by 39 cents per share. But it wasn’t all bad news. During the quarter, Netflix added 7.6 million net new subscribers, 68% higher than it forecasted of 4.5 million. On Tuesday, to keep Netflix stock on its trajectory, beyond a top- and bottom-line beat, the company will need to issue strong guidance for the next quarter and full year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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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