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Netflix Q4 Preview: Can Shares Remain Hot?

After providing investors with a multitude of gains over the last several years, the music was shut off for Netflix shares in 2022. However, in a quick turn of events, Netflix shares have crushed the S&P 500's performance over the last three months. Read More...

After providing investors with a multitude of gains over the last several years, the music was shut off for Netflix NFLX shares in 2022, sending them tumbling for the greater part of the year.

A slowdown in subscriber growth was the primary driving force behind the sell-off, with a hawkish Federal Reserve also being a thorn in the company’s side.

However, in a quick turn of events, Netflix shares have crushed the S&P 500’s performance over the last three months, as shown in the chart below.

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Zacks Investment Research

Zacks Investment Research

Image Source: Zacks Investment Research

In addition, the company is slated to reveal quarterly results this Thursday, January 19th.

It raises a valid question: how does the company stack up heading into the release? Let’s take a closer look.

Net Subscriber Adds

The most critical metric investors will be tracking is the number of subscriber adds throughout the quarter.

After all, a declining user base is certainly not what investors want to see.

For the quarter, the Zacks Consensus Estimate for net subscriber adds stands at 4.47 million, a nice increase from the prior quarter’s 2.4 million figure. Still, the value reflects a more than 40% decrease from year-ago subscriber adds of 8.3 million in Q4 2021.

However, it’s worth mentioning that Netflix has positively surprised on this metric in back-to-back quarters.

Quarterly Estimates

Analysts have had mixed reactions for the quarter to be reported, with two downward and upward earnings estimate revisions hitting the tape. The Zacks Consensus EPS Estimate of $0.45 suggests a Y/Y decline of roughly 66% in earnings.

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The company’s top-line is in better shape; the Zacks Consensus Sales Estimate of $7.8 billion suggests a marginal 1.7% Y/Y uptick in revenue.

Quarterly Performance

Netflix has consistently exceeded bottom line estimates, surpassing the Zacks Consensus EPS Estimate in five consecutive quarters by at least 10%.

Top line results have primarily been mixed; NFLX has fallen short of revenue estimates in three of its last six quarterly releases. Below is a chart illustrating the company’s revenue on a quarterly basis.

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Zacks Investment Research

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Image Source: Zacks Investment Research

Valuation

Following the rough stretch of price action over the last year, Netflix’s valuation multiples have pulled back extensively; NFLX shares currently trade at a 31.4X forward earnings multiple, a fraction of the 71.1X five-year median.

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Zacks Investment Research

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Image Source: Zacks Investment Research

In addition, the company’s forward price-to-sales ratio has come down to 4.4X, well off the 7.6X five-year median.

Zacks Investment Research

Zacks Investment Research

Zacks Investment Research

Image Source: Zacks Investment Research

Putting Everything Together

After a rough showing throughout the majority of 2022, Netflix NFLX shares have rebounded over the last three months, up more than 30%.

In addition, the company’s valuation multiples have cratered, perhaps enticing those with a long-term horizon.

Of course, net subscriber adds will be the most closely watched aspect of the entire earnings release, a metric that the company has positively surprised on in back-to-back quarters.

Further, analysts have primarily been mixed in their earnings outlook, with estimates indicating a sizable Y/Y pullback in earnings and a slight uptick in revenue.

Currently, Netflix is a Zacks Rank #3 (Hold) with an Earnings ESP Score of 21%.

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