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Why Is Netflix (NFLX) Up 12.4% Since Last Earnings Report?
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It has been about a month since the last earnings report for Netflix (NFLX - Free Report) . Shares have added about 12.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Netflix due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Netflix Q3 Earnings Beat, User Gain Higher Than Expected
Netflix reported third-quarter 2022 earnings of $3.20 per share, beating the Zacks Consensus Estimate by 46.92% and the company’s guidance of $2.14 per share. However, the figure decreased 2.8% year over year.
Revenues of $7.93 billion increased 5.9% year over year and beat the consensus mark by 1%. The average revenues per membership increased 1% year over year on a reported basis and 8% on a foreign-exchange neutral basis.
The streaming giant gained 2.41 million paid subscribers globally, higher than its estimate of gaining one million users. Netflix had added 4.38 million paid subscribers in the year-ago quarter.
At the end of the third quarter, Netflix had 223.09 million paid subscribers globally, up 4.5% year over year and better than our estimate of 221.67 million.
Netflix benefited from strength in its content portfolio amid stiff competition. Hits like Monster: The Jeffrey Dahmer Story, Stranger Things season 4, Extraordinary Attorney Woo, The Gray Man and Purple Hearts helped Netflix to win subscribers.
Although Netflix is suffering from growing competition from services provided by Amazon, Disney and Apple, the company continued to witness strong engagement in the reported quarter.
In the United States, Netflix accounts for 7.6% of TV time, which is 2.6 times of Amazon and 1.4 times of services provided by Disney (Disney + Hulu + Hulu Live). In the United Kingdom, Netflix accounts for 8.2% of video viewing, which is 2.3 times of Amazon and 2.7 times of Disney+.
Segmental Revenue Details
The United States and Canada (“UCAN") reported revenues of $3.60 billion, which rose 10.6% year over year and accounted for 45.4% of total revenues. ARPU grew 12% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for UCAN decreased 0.9% from the year-ago quarter to 73.39 million, which was better than our estimate of 71.78 million. The company gained 0.10 million paid subscribers compared with the year-ago quarter’s gain of 0.07 million.
Europe, Middle East & Africa (“EMEA”) reported revenues of $2.38 billion, which declined 2.3% year over year and accounted for 30% of total revenues. ARPU grew 7% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for EMEA increased 4.3% from the year-ago quarter to 73.53 million, which was better than our estimate of 71.97 million. The company gained 0.57 million paid subscribers compared with the year-ago quarter’s net addition of 1.80 million.
Latin America’s (LATAM) revenues of $1.02 billion increased 11.9% year over year, contributing 12.9% of total revenues. ARPU grew 16% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for LATAM rose 2.4% from the year-ago quarter to 39.94 million but was lower than our estimate of 40.12 million. The company gained 0.31 million paid subscribers compared with the year-ago quarter’s net addition of 0.33 million.
Asia Pacific’s (“APAC”) revenues of $889 million increased 6.6% year over year and accounted for 11.2% of total revenues. ARPU decreased 3% year over year on a foreign-exchange neutral basis.
The paid subscriber base for APAC jumped 20.6% from the year-ago quarter to 36.23 million but lower than our estimate of 37.79 million. The company added 1.43 million paid subscribers in the quarter, down 34.3% year over year.
Operating Details
Marketing expenses decreased 10.7% year over year to $568 million. As a percentage of revenues, marketing expenses decreased 130 basis points (bps) to 7.2%.
Operating income decreased 12.7% year over year to $1.53 billion. Operating margin contracted 410 bps on a year-over-year basis to 19.3%.
Balance Sheet & Free Cash Flow
Netflix had $6.11 billion of cash and cash equivalents as of Sep 30, 2022 compared with $5.82 billion as of Jun 30, 2022.
Long-term debt was $13.9 billion as of Sep 30, 2022 compared with $14.2 billion as of Jun 30, 2022.
Streaming content obligations were $21.57 billion as of Sep 30, 2022 compared with $22.37 billion as of Jun 30, 2022.
Netflix reported a free cash flow of $471.9 million compared with a free cash flow of $106.3 million in the previous quarter.
Guidance
For the fourth quarter of 2022, Netflix forecasts earnings of 36 cents per share, indicating an almost 73% decline from the figure reported in the year-ago quarter.
Total revenues are anticipated to be $7.776 billion, suggesting growth of 0.9% year over year. The consensus mark for revenues stands at $7.95 billion, higher than the company’s expectation and indicating 3.19% growth from the figure reported in the year-ago quarter.
Netflix expects to gain 4.5 million paid subscribers in fourth-quarter 2022 compared with the year-ago quarter’s addition of 8.28 million.
Netflix expects to end the fourth quarter of 2022 with 227.59 million paid subscribers globally, indicating growth of 2.6% from the year-ago quarter.
The operating margin is projected at 4.2% compared with the 8.2% reported in the year-ago quarter.
Unfavorable forex, due to the strengthening of the U.S. dollar, is now expected to hurt Netflix’s full-year 2022 revenues and operating income by roughly $1 billion and $0.8 billion, respectively.
Netflix continues to expect a free cash flow of more than $1 billion for the full year 2022 (plus or minus a few hundred million dollars).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -61.86% due to these changes.
VGM Scores
Currently, Netflix has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Netflix has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Netflix (NFLX) Up 12.4% Since Last Earnings Report?
It has been about a month since the last earnings report for Netflix (NFLX - Free Report) . Shares have added about 12.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Netflix due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Netflix Q3 Earnings Beat, User Gain Higher Than Expected
Netflix reported third-quarter 2022 earnings of $3.20 per share, beating the Zacks Consensus Estimate by 46.92% and the company’s guidance of $2.14 per share. However, the figure decreased 2.8% year over year.
Revenues of $7.93 billion increased 5.9% year over year and beat the consensus mark by 1%. The average revenues per membership increased 1% year over year on a reported basis and 8% on a foreign-exchange neutral basis.
The streaming giant gained 2.41 million paid subscribers globally, higher than its estimate of gaining one million users. Netflix had added 4.38 million paid subscribers in the year-ago quarter.
At the end of the third quarter, Netflix had 223.09 million paid subscribers globally, up 4.5% year over year and better than our estimate of 221.67 million.
Netflix benefited from strength in its content portfolio amid stiff competition. Hits like Monster: The Jeffrey Dahmer Story, Stranger Things season 4, Extraordinary Attorney Woo, The Gray Man and Purple Hearts helped Netflix to win subscribers.
Although Netflix is suffering from growing competition from services provided by Amazon, Disney and Apple, the company continued to witness strong engagement in the reported quarter.
In the United States, Netflix accounts for 7.6% of TV time, which is 2.6 times of Amazon and 1.4 times of services provided by Disney (Disney + Hulu + Hulu Live). In the United Kingdom, Netflix accounts for 8.2% of video viewing, which is 2.3 times of Amazon and 2.7 times of Disney+.
Segmental Revenue Details
The United States and Canada (“UCAN") reported revenues of $3.60 billion, which rose 10.6% year over year and accounted for 45.4% of total revenues. ARPU grew 12% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for UCAN decreased 0.9% from the year-ago quarter to 73.39 million, which was better than our estimate of 71.78 million. The company gained 0.10 million paid subscribers compared with the year-ago quarter’s gain of 0.07 million.
Europe, Middle East & Africa (“EMEA”) reported revenues of $2.38 billion, which declined 2.3% year over year and accounted for 30% of total revenues. ARPU grew 7% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for EMEA increased 4.3% from the year-ago quarter to 73.53 million, which was better than our estimate of 71.97 million. The company gained 0.57 million paid subscribers compared with the year-ago quarter’s net addition of 1.80 million.
Latin America’s (LATAM) revenues of $1.02 billion increased 11.9% year over year, contributing 12.9% of total revenues. ARPU grew 16% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for LATAM rose 2.4% from the year-ago quarter to 39.94 million but was lower than our estimate of 40.12 million. The company gained 0.31 million paid subscribers compared with the year-ago quarter’s net addition of 0.33 million.
Asia Pacific’s (“APAC”) revenues of $889 million increased 6.6% year over year and accounted for 11.2% of total revenues. ARPU decreased 3% year over year on a foreign-exchange neutral basis.
The paid subscriber base for APAC jumped 20.6% from the year-ago quarter to 36.23 million but lower than our estimate of 37.79 million. The company added 1.43 million paid subscribers in the quarter, down 34.3% year over year.
Operating Details
Marketing expenses decreased 10.7% year over year to $568 million. As a percentage of revenues, marketing expenses decreased 130 basis points (bps) to 7.2%.
Operating income decreased 12.7% year over year to $1.53 billion. Operating margin contracted 410 bps on a year-over-year basis to 19.3%.
Balance Sheet & Free Cash Flow
Netflix had $6.11 billion of cash and cash equivalents as of Sep 30, 2022 compared with $5.82 billion as of Jun 30, 2022.
Long-term debt was $13.9 billion as of Sep 30, 2022 compared with $14.2 billion as of Jun 30, 2022.
Streaming content obligations were $21.57 billion as of Sep 30, 2022 compared with $22.37 billion as of Jun 30, 2022.
Netflix reported a free cash flow of $471.9 million compared with a free cash flow of $106.3 million in the previous quarter.
Guidance
For the fourth quarter of 2022, Netflix forecasts earnings of 36 cents per share, indicating an almost 73% decline from the figure reported in the year-ago quarter.
Total revenues are anticipated to be $7.776 billion, suggesting growth of 0.9% year over year. The consensus mark for revenues stands at $7.95 billion, higher than the company’s expectation and indicating 3.19% growth from the figure reported in the year-ago quarter.
Netflix expects to gain 4.5 million paid subscribers in fourth-quarter 2022 compared with the year-ago quarter’s addition of 8.28 million.
Netflix expects to end the fourth quarter of 2022 with 227.59 million paid subscribers globally, indicating growth of 2.6% from the year-ago quarter.
The operating margin is projected at 4.2% compared with the 8.2% reported in the year-ago quarter.
Unfavorable forex, due to the strengthening of the U.S. dollar, is now expected to hurt Netflix’s full-year 2022 revenues and operating income by roughly $1 billion and $0.8 billion, respectively.
Netflix continues to expect a free cash flow of more than $1 billion for the full year 2022 (plus or minus a few hundred million dollars).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -61.86% due to these changes.
VGM Scores
Currently, Netflix has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Netflix has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.