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Why Is Netflix (NFLX) Up 16.2% 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 16.2% 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 the most recent earnings report in order to get a better handle on the important drivers.
Netflix Q3 Earnings Beat, Revenues Rise Y/Y on User Gain
Netflix third-quarter 2023 earnings of $3.73 per share, which beat the Zacks Consensus Estimate by 7.8% and increased 20.3% year over year.
Revenues of $8.54 billion increased 7.8% year over year and beat the consensus mark by 0.11%.
The streaming giant gained 8.76 million paid subscribers globally, thanks to the rollout of paid sharing, strong and steady programming and the ongoing expansion of streaming globally. It gained 2.41 million paid subscribers in the year-ago quarter.
Ad-supported plan membership increased almost 70% quarter-over-quarter.
ARM decreased 1% year over year, both on a reported basis and a foreign-exchange neutral basis in the third quarter. ARM declined due to a higher mix of membership growth from lower ARM countries and limited price increases over the past 18 months.
At the end of the third quarter, Netflix had 247.15 million paid subscribers globally, up 10.8% year over year.
Although the company is suffering from growing competition from services provided by Amazon, Disney and Apple, it benefited from a strong content portfolio in the reported quarter.
Hit shows like season 1 of One Piece, season 3 of The Witcher and Top Boy, Sex Education season 4, Love at First Sight, and local language shows like Dear Child (Germany), Sintonia season 4 (Brazil), Guns & Gulaabs season 1 (India) and Class Act (France) helped Netflix win subscribers.
Netflix’s Segmental Revenue Details
The United States and Canada (“UCAN") reported revenues of $3.74 billion, which rose 3.7% year over year and accounted for 43.7% of total revenues. The figure missed our model estimate of $3.82 billion, primarily due to lower ARPU.
ARPU declined 0.5% from the year-ago quarter. On a foreign-exchange neutral basis, ARPU was unchanged year over year.
The paid subscriber base for UCAN increased 5.4% from the year-ago quarter to 77.32 million. The company gained 1.75 million paid subscribers compared with the year-ago quarter’s gain of 0.1 million.
Europe, Middle East & Africa (“EMEA”) reported revenues of $2.69 billion, which increased 13.3% year over year and accounted for 31.5% of total revenues. The figure beat our model estimate of $2.56 billion. ARPU increased 2% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for EMEA increased 13.9% from the year-ago quarter to 83.76 million. Netflix gained 3.95 million paid subscribers compared with the year-ago quarter’s net gain of 0.57 million.
Latin America’s (“LATAM”) revenues of $1.14 billion increased 11.6% year over year, contributing 13.4% of total revenues. The figure beat our model estimate of $1.08 billion.
ARPU increased 8% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for LATAM rose 9.3% from the year-ago quarter to 43.65 million. It gained 1.18 million paid subscribers in the reported quarter.
Asia Pacific’s (“APAC”) revenues of $948 million increased 6.6% year over year and accounted for 11.1% of total revenues. The figure beat our model estimate of $919.3 million.
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 42.43 million. The company added 1.88 million paid subscribers in the quarter.
Operating Details
Marketing expenses decreased 1.6% year over year to $558.7 million. As a percentage of revenues, marketing expenses decreased 60 basis points (bps) to 6.5%.
Operating income increased 25% year over year to $1.92 billion. Operating margin expanded 310 bps on a year-over-year basis to 22.4%.
Balance Sheet & Free Cash Flow
Netflix had $7.87 billion of cash and cash equivalents as of Sep 30, 2023 compared with $8.58 billion as of Jun 30, 2023.
Total debt was $14.3 billion as of Sep 30, 2023 compared with $14.47 billion as of Jun 30, 2023.
Streaming content obligations were $19.65 billion as of Sep 30, 2023 compared with $20.90 billion as of Jun 30, 2023.
Netflix reported a free cash flow of $1.89 billion compared with a free cash flow of $1.34 billion in the previous quarter.
It repurchased $2.5 billion worth of shares in the reported quarter.
Guidance
For the fourth quarter of 2023, Netflix forecasts earnings of of $2.15 per share, significantly up from 12 cents reported in the year-ago quarter.
The Zacks Consensus Estimate for the same is pegged at $2.24 per share, currently lower than the company’s expectation.
Total revenues are anticipated to be $8.69 billion, suggesting growth of 10.7% year over year or 12% on a foreign-exchange neutral basis. The consensus mark for revenues stands at $8.76 billion, higher than the company’s expectation and indicating 11.59% growth from the figure reported in the year-ago quarter.
The quarterly operating margin is projected at 13.3% compared with the 19.3% reported in the year-ago quarter.
Netflix expects paid net additions to be similar to third-quarter 2023. Global ARM in the fourth quarter is expected to be roughly flat year over year, primarily due to limited price increases over the last 18 months.
For 2023, the company expects the operating margin to be 20%. It expects to generate a free cash flow of at least $6.5 billion, higher than its previous guidance of $5 billion.
Netflix increased its share repurchase authorization to $10 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
VGM Scores
At this time, Netflix has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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 16.2% Since Last Earnings Report?
A month has gone by since the last earnings report for Netflix (NFLX - Free Report) . Shares have added about 16.2% 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 the most recent earnings report in order to get a better handle on the important drivers.
Netflix Q3 Earnings Beat, Revenues Rise Y/Y on User Gain
Netflix third-quarter 2023 earnings of $3.73 per share, which beat the Zacks Consensus Estimate by 7.8% and increased 20.3% year over year.
Revenues of $8.54 billion increased 7.8% year over year and beat the consensus mark by 0.11%.
The streaming giant gained 8.76 million paid subscribers globally, thanks to the rollout of paid sharing, strong and steady programming and the ongoing expansion of streaming globally. It gained 2.41 million paid subscribers in the year-ago quarter.
Ad-supported plan membership increased almost 70% quarter-over-quarter.
ARM decreased 1% year over year, both on a reported basis and a foreign-exchange neutral basis in the third quarter. ARM declined due to a higher mix of membership growth from lower ARM countries and limited price increases over the past 18 months.
At the end of the third quarter, Netflix had 247.15 million paid subscribers globally, up 10.8% year over year.
Although the company is suffering from growing competition from services provided by Amazon, Disney and Apple, it benefited from a strong content portfolio in the reported quarter.
Hit shows like season 1 of One Piece, season 3 of The Witcher and Top Boy, Sex Education season 4, Love at First Sight, and local language shows like Dear Child (Germany), Sintonia season 4 (Brazil), Guns & Gulaabs season 1 (India) and Class Act (France) helped Netflix win subscribers.
Netflix’s Segmental Revenue Details
The United States and Canada (“UCAN") reported revenues of $3.74 billion, which rose 3.7% year over year and accounted for 43.7% of total revenues. The figure missed our model estimate of $3.82 billion, primarily due to lower ARPU.
ARPU declined 0.5% from the year-ago quarter. On a foreign-exchange neutral basis, ARPU was unchanged year over year.
The paid subscriber base for UCAN increased 5.4% from the year-ago quarter to 77.32 million. The company gained 1.75 million paid subscribers compared with the year-ago quarter’s gain of 0.1 million.
Europe, Middle East & Africa (“EMEA”) reported revenues of $2.69 billion, which increased 13.3% year over year and accounted for 31.5% of total revenues. The figure beat our model estimate of $2.56 billion. ARPU increased 2% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for EMEA increased 13.9% from the year-ago quarter to 83.76 million. Netflix gained 3.95 million paid subscribers compared with the year-ago quarter’s net gain of 0.57 million.
Latin America’s (“LATAM”) revenues of $1.14 billion increased 11.6% year over year, contributing 13.4% of total revenues. The figure beat our model estimate of $1.08 billion.
ARPU increased 8% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for LATAM rose 9.3% from the year-ago quarter to 43.65 million. It gained 1.18 million paid subscribers in the reported quarter.
Asia Pacific’s (“APAC”) revenues of $948 million increased 6.6% year over year and accounted for 11.1% of total revenues. The figure beat our model estimate of $919.3 million.
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 42.43 million. The company added 1.88 million paid subscribers in the quarter.
Operating Details
Marketing expenses decreased 1.6% year over year to $558.7 million. As a percentage of revenues, marketing expenses decreased 60 basis points (bps) to 6.5%.
Operating income increased 25% year over year to $1.92 billion. Operating margin expanded 310 bps on a year-over-year basis to 22.4%.
Balance Sheet & Free Cash Flow
Netflix had $7.87 billion of cash and cash equivalents as of Sep 30, 2023 compared with $8.58 billion as of Jun 30, 2023.
Total debt was $14.3 billion as of Sep 30, 2023 compared with $14.47 billion as of Jun 30, 2023.
Streaming content obligations were $19.65 billion as of Sep 30, 2023 compared with $20.90 billion as of Jun 30, 2023.
Netflix reported a free cash flow of $1.89 billion compared with a free cash flow of $1.34 billion in the previous quarter.
It repurchased $2.5 billion worth of shares in the reported quarter.
Guidance
For the fourth quarter of 2023, Netflix forecasts earnings of of $2.15 per share, significantly up from 12 cents reported in the year-ago quarter.
The Zacks Consensus Estimate for the same is pegged at $2.24 per share, currently lower than the company’s expectation.
Total revenues are anticipated to be $8.69 billion, suggesting growth of 10.7% year over year or 12% on a foreign-exchange neutral basis. The consensus mark for revenues stands at $8.76 billion, higher than the company’s expectation and indicating 11.59% growth from the figure reported in the year-ago quarter.
The quarterly operating margin is projected at 13.3% compared with the 19.3% reported in the year-ago quarter.
Netflix expects paid net additions to be similar to third-quarter 2023. Global ARM in the fourth quarter is expected to be roughly flat year over year, primarily due to limited price increases over the last 18 months.
For 2023, the company expects the operating margin to be 20%. It expects to generate a free cash flow of at least $6.5 billion, higher than its previous guidance of $5 billion.
Netflix increased its share repurchase authorization to $10 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
VGM Scores
At this time, Netflix has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Netflix has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.