Netflix (NASDAQ:NFLX) is scheduled to report its Q4 2023 results on January 23. We estimate that Netflix’s revenue will come in at just over $8.75 billion for the quarter, marginally ahead of consensus estimates and the company’s guidance of $8.69 billion. This would also mark a year-over-year increase of approximately 11%. We estimate that earnings will stand at $2.22 per share, also roughly in line with consensus. So what are some of the trends that are likely to drive Netflix’s earnings for the quarter? See our interactive dashboard analysis Netflix Revenue Preview for more details on how Netflix’s revenue and earnings are likely to trend for the quarter.
Netflix began implementing restrictions on password sharing in the United States and more than 100 other countries in May 2023, requiring users to pay an additional monthly fee (about $8 in the United States) to share accounts with users outside their households. The move appears to be off to a strong start, with Netflix adding 5.9 million subscribers over Q2 and 8.76 million subscribers in Q3. Netflix also indicated that sign-ups outnumbered cancellations — an indication that the removal of password sharing generally worked in its favor. Netflix is also more confident about its value proposition, raising prices for its basic and premium plans in October.
In particular, the company’s ad-supported plan could also start to play a bigger role in the context of Netflix’s overall business. During Q3, Netflix said its ad-supported plan membership grew nearly 70% quarter over quarter, though it did not provide specific figures. The average revenue per membership for its ad-supported plan exceeded its standard plan, accounting for both subscription fees and advertising revenue.
Looking at a slightly longer period, NFLX shares have seen a 10% decline from levels of $540 in early January 2021 to around $475 now, versus an increase of around 25% for the S&P 500 over this roughly 3-year period. However, the decline in NFLX shares was far from consistent. Returns for the stock were 11% in 2021, -51% in 2022, and 65% in 2023. By comparison, returns for the S&P 500 were 27% in 2021, -19% in 2022, and 24% in 2023 – indicating. that NFLX underperformed the S&P in 2021 and 2022.
In fact, consistently beating the S&P 500 – in good times and bad – it’s been tough over the past few years for individual stocks; for other heavyweights in the Communications Services sector including GOOG, META and TMUS, and even for the mega-cap stars TSLA, MSFT and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 every year during the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less roller coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and high interest rates, could NFLX face a similar situation as it did in 2021 and 2022 and underperforms the S&P over the next 12 months – or will it see a recovery?
While we think Netflix stock could move slightly higher if it beats earnings, we believe the stock is slightly overvalued at current levels of around $474 per share. The streaming wars are heating up and increasing competition could impact the company’s overall growth in the long term. Additionally, concerns about the broader macroeconomic picture could also weigh on players like Netflix, which are dependent on growing consumer spending. We have a price of $410 for Netflix, which is 14% below the market price. See our analysis Netflix Rating: Expensive or Inexpensive for more details on what drives our pricing for Netflix. Also, check out the analysis of Netflix revenue for more details on how Netflix’s revenues are trending.
returns | Jan 2024 MTD (1) |
2024 YTD (1) |
2017-24 Total (2) |
NFLX Return | -3% | -3% | 283% |
S&P 500 Return | -2% | -2% | 110% |
Hit Enhanced Value Portfolio | -4% | -4% | 582% |
(1) Monthly and current as of 7/1/2024
(2) Cumulative total profit since the end of 2016
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