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Why Is Netflix (NFLX) Up 5.2% Since Last Earnings Report?
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A month has gone by since the last earnings report for Netflix (NFLX - Free Report) . Shares have added about 5.2% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Netflix Q1 Earnings Beat, Revenues Up Y/Y on User Gain
Netflix reported first-quarter 2023 earnings of $2.88 per share, beating the Zacks Consensus Estimate by 1.77%. However, the figure slumped 18.4% year over year.
Revenues of $8.16 billion increased 3.7% year over year but lagged the consensus mark by 0.25%. On a foreign-exchange neutral basis, revenues grew 8% year over year.
The average revenues per membership decreased 1% year over year on a reported basis but increased 4% on a foreign-exchange neutral basis.
The streaming giant gained 1.75 million paid subscribers globally. It lost 0.2 million paid subscribers in the year-ago quarter.
At the end of the first quarter, Netflix had 232.5 million paid subscribers globally, up 4.9% year over year.
Although Netflix is suffering from growing competition from services provided by Amazon, Disney and Apple, the company benefited from a strong content portfolio in the reported quarter.
Hit shows like The Night Agent, The Glory, Full Swing, and That 90s Show helped Netflix win subscribers. Noteworthy movies include You People, Luther: The Fallen Sun and the much-anticipated Murder Mystery 2.
The company launched paid sharing in four countries (Canada, New Zealand, Spain, and Portugal) during the reported quarter. Although it witnessed cancellations at the initial stage of the launch, engagement gradually improved in the reported quarter.
In the second quarter, Netflix plans to expand the paid sharing roll-out to other countries, including the United States.
It also announced that it is shutting down DVD.com later this year. It will be shipping the final DVDs on Sep 29, 2023.
Netflix’s Segmental Revenue Details
The United States and Canada (“UCAN") reported revenues of $3.61 billion, which rose 7.7% year over year and accounted for 44.2% of total revenues. ARPU grew 9% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for UCAN decreased 0.2% from the year-ago quarter to 74.40 million. The company gained 0.102 million paid subscribers compared with the year-ago quarter’s loss of 0.636 million.
Europe, Middle East & Africa (“EMEA”) reported revenues of $2.52 billion, which declined 1.7% year over year and accounted for 30.9% of total revenues. ARPU inched up 1% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for EMEA increased 4.9% from the year-ago quarter to 77.37 million. Netflix gained 0.644 million paid subscribers compared with the year-ago quarter’s net loss of 0.303 million.
Latin America’s (LATAM) revenues of $1.07 billion increased 7.1% year over year, contributing 13.1% of total revenues. ARPU grew 8% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for LATAM rose 4.1% from the year-ago quarter to 41.25 million. It lost 0.45 million paid subscribers compared with the year-ago quarter’s loss of 0.351 million.
Asia Pacific’s (“APAC”) revenues of $933.5 million increased 1.8% year over year and accounted for 11.4% of total revenues. ARPU decreased 6% year over year on a foreign-exchange neutral basis.
The paid subscriber base for APAC jumped 17.1% from the year-ago quarter to 39.48 million. The company added 1.5 million paid subscribers in the quarter, up 33.9% year over year.
Operating Details
Marketing expenses declined 0.1% year over year to $555.4 million. As a percentage of revenues, marketing expenses decreased 30 basis points (bps) to 6.8%.
Operating income decreased 13.1% year over year to $1.71 billion, beating Netflix’s guidance of $1.63 billion, driven by higher revenues. Operating margin contracted 410 bps on a year-over-year basis to 21%, primarily due to unfavorable forex.
Balance Sheet & Free Cash Flow
Netflix had $7.83 billion of cash and cash equivalents as of Mar 31, 2023 compared with $6.06 billion as of Dec 31, 2022.
Total debt was $14.44 billion as of Mar 31, 2023 compared with $14.35 billion as of Dec 31, 2022.
Streaming content obligations were $21.53 billion as of Mar 31, 2023 compared with $21.83 billion as of Dec 31, 2022.
Netflix reported a free cash flow of $2.1 billion compared with a free cash flow of $802 million in the previous quarter.
Guidance
For the second quarter of 2023, the company forecasts earnings of $2.84 per share, indicating an almost 20% decline from the figure reported in the year-ago quarter.
Total revenues are anticipated to be $8.242 billion, suggesting growth of 3.4% year over year or 6% on a forex-neutral basis. The consensus mark for revenues stands at $8.17 billion, almost in line with the company’s expectation and indicating 3.88% growth from the figure reported in the year-ago quarter.
The quarterly operating margin is projected at 19% compared with the 19.8% reported in the year-ago quarter.
For 2023, Netflix expects the operating margin to be in the 18 range. It expects to generate a free cash flow of at least $3.5 billion, higher than its previous guidance of $3 billion. This reflects lower spending on content this year. For 2024, it expects to spend roughly $17 billion on content.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Netflix has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 D. 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 5.2% Since Last Earnings Report?
A month has gone by since the last earnings report for Netflix (NFLX - Free Report) . Shares have added about 5.2% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Netflix Q1 Earnings Beat, Revenues Up Y/Y on User Gain
Netflix reported first-quarter 2023 earnings of $2.88 per share, beating the Zacks Consensus Estimate by 1.77%. However, the figure slumped 18.4% year over year.
Revenues of $8.16 billion increased 3.7% year over year but lagged the consensus mark by 0.25%. On a foreign-exchange neutral basis, revenues grew 8% year over year.
The average revenues per membership decreased 1% year over year on a reported basis but increased 4% on a foreign-exchange neutral basis.
The streaming giant gained 1.75 million paid subscribers globally. It lost 0.2 million paid subscribers in the year-ago quarter.
At the end of the first quarter, Netflix had 232.5 million paid subscribers globally, up 4.9% year over year.
Although Netflix is suffering from growing competition from services provided by Amazon, Disney and Apple, the company benefited from a strong content portfolio in the reported quarter.
Hit shows like The Night Agent, The Glory, Full Swing, and That 90s Show helped Netflix win subscribers. Noteworthy movies include You People, Luther: The Fallen Sun and the much-anticipated Murder Mystery 2.
The company launched paid sharing in four countries (Canada, New Zealand, Spain, and Portugal) during the reported quarter. Although it witnessed cancellations at the initial stage of the launch, engagement gradually improved in the reported quarter.
In the second quarter, Netflix plans to expand the paid sharing roll-out to other countries, including the United States.
It also announced that it is shutting down DVD.com later this year. It will be shipping the final DVDs on Sep 29, 2023.
Netflix’s Segmental Revenue Details
The United States and Canada (“UCAN") reported revenues of $3.61 billion, which rose 7.7% year over year and accounted for 44.2% of total revenues. ARPU grew 9% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for UCAN decreased 0.2% from the year-ago quarter to 74.40 million. The company gained 0.102 million paid subscribers compared with the year-ago quarter’s loss of 0.636 million.
Europe, Middle East & Africa (“EMEA”) reported revenues of $2.52 billion, which declined 1.7% year over year and accounted for 30.9% of total revenues. ARPU inched up 1% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for EMEA increased 4.9% from the year-ago quarter to 77.37 million. Netflix gained 0.644 million paid subscribers compared with the year-ago quarter’s net loss of 0.303 million.
Latin America’s (LATAM) revenues of $1.07 billion increased 7.1% year over year, contributing 13.1% of total revenues. ARPU grew 8% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for LATAM rose 4.1% from the year-ago quarter to 41.25 million. It lost 0.45 million paid subscribers compared with the year-ago quarter’s loss of 0.351 million.
Asia Pacific’s (“APAC”) revenues of $933.5 million increased 1.8% year over year and accounted for 11.4% of total revenues. ARPU decreased 6% year over year on a foreign-exchange neutral basis.
The paid subscriber base for APAC jumped 17.1% from the year-ago quarter to 39.48 million. The company added 1.5 million paid subscribers in the quarter, up 33.9% year over year.
Operating Details
Marketing expenses declined 0.1% year over year to $555.4 million. As a percentage of revenues, marketing expenses decreased 30 basis points (bps) to 6.8%.
Operating income decreased 13.1% year over year to $1.71 billion, beating Netflix’s guidance of $1.63 billion, driven by higher revenues. Operating margin contracted 410 bps on a year-over-year basis to 21%, primarily due to unfavorable forex.
Balance Sheet & Free Cash Flow
Netflix had $7.83 billion of cash and cash equivalents as of Mar 31, 2023 compared with $6.06 billion as of Dec 31, 2022.
Total debt was $14.44 billion as of Mar 31, 2023 compared with $14.35 billion as of Dec 31, 2022.
Streaming content obligations were $21.53 billion as of Mar 31, 2023 compared with $21.83 billion as of Dec 31, 2022.
Netflix reported a free cash flow of $2.1 billion compared with a free cash flow of $802 million in the previous quarter.
Guidance
For the second quarter of 2023, the company forecasts earnings of $2.84 per share, indicating an almost 20% decline from the figure reported in the year-ago quarter.
Total revenues are anticipated to be $8.242 billion, suggesting growth of 3.4% year over year or 6% on a forex-neutral basis. The consensus mark for revenues stands at $8.17 billion, almost in line with the company’s expectation and indicating 3.88% growth from the figure reported in the year-ago quarter.
The quarterly operating margin is projected at 19% compared with the 19.8% reported in the year-ago quarter.
For 2023, Netflix expects the operating margin to be in the 18 range. It expects to generate a free cash flow of at least $3.5 billion, higher than its previous guidance of $3 billion. This reflects lower spending on content this year. For 2024, it expects to spend roughly $17 billion on content.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Netflix has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 D. 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.