Netflix (NFLX) will be a highlight of next week’s earnings lineup set to report its first-quarter results on April 18.
With Netflix stock having a strong performance this year investors may be wondering if it’s time to invest in the streaming giant.
Let’s see if Netflix stock is a buy right now or if there might be better opportunities ahead.
Q1 Preview
The Zacks Consensus Estimate for Netflix’s Q1 earnings is $2.81 per share, which would be a -20% decline from EPS of $3.53 in the prior-year quarter. Sales are expected to be up 4% at $8.18 billion Vs. $7.87 billion in Q1 2022.
The dip in Netflix’s YoY quarterly bottom line is attributed to the launch of its paid-sharing service which will allow a paying subscriber to add one “extra member” to their profile. This deployment was issued to lower the usage of password sharing to multiple non-paying members with Netflix hoping it will add back to its earnings and revenue in the long haul.
Earnings ESP: The Zacks Expected Surprise Prediction indicates that Netflix could slightly miss Q1 earnings expectations with the Most Accurate Estimate at $2.79 per share and roughly 1% below the Zacks Consensus.
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Subscriber Growth
Despite the possibility of missing EPS expectations, Netflix stock can largely thrive on increasing subscriber numbers as it shows the ability of the company to retain members and grow going forward.
Netflix’s performance after its quarterly reports can largely depend on its subscriber growth more so than its top and bottom line results. This is especially true with the company facing increased streaming competition from Disney (DIS), Comcast (CMCSA), and Apple (AAPL).
To what would be a delight for investors, Netflix is forecasted to have added up to 3.71 million subscribers during Q1. This is compared to a loss of -200,000 subscribers in the same period last year which was the company’s first quarterly membership loss in over a decade. Still leading the streaming space, Netflix is now expected to have around 234.71 million subscribers a 1% increase from last quarter and year-end 2022.
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Performance & Valuation
Netflix stock is +15% year to date to match the Nasdaq and its main streaming competitor Disney’s performances while topping the S&P 500’s +8%. Netflix shares have now rallied 38% over the last six months to largely outperform Disney’s +2% and the broader indexes.
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Shares of NFLX trade at $337 per share and 30.9X forward earnings which is well below its extreme decade-long high of 513.4X and 71% beneath the median of 106X. While Netflix does trade above its industry average of 12.4X, Wall Street has historically been ok with paying a premium for the company’s grwoth prospects as a leader and pioneer in its space.
Furthermore, with its P/E valuation more attractive relative to its past its noteworthy that Netflix is now trading closer to Disney’s 25.3X forward earnings.
Outlook
Netflix earnings are expected to jump 12% this year and climb another 26% in fiscal 2024 at $14.18 per share. However, earnings estimate revisions have started to decline over the last 30 days. On the top line, sales are forecasted to be up 8% in FY23 and rise another 11% in FY24 to $38.06 billion.
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Bottom Line
Gong into its Q1 report Netflix stock lands a Zacks Rank #3 (Hold). While the recent decline in earnings estimate revisions is somewhat concerning, Netflix’s annual top and bottom line growth is still expected to be strong over the next few years.
With that being said, first-quarter results and guidance will need to help reaffirm this and show that Netflix has the ability to continue expanding its subscriber base despite increasing competition from Disney and others.
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