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Netflix (NFLX) Up 5.2% Since Last Earnings Report: Can It Continue?
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It has been about a month 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 the most recent earnings report in order to get a better handle on the important catalysts.
Netflix Q4 Earnings Miss, Revenues Rise Y/Y on User Gain
Netflix reported fourth-quarter 2023 earnings of $2.11 per share, which missed the Zacks Consensus Estimate by 4.09%. The figure surged from 12 cents reported in the year-ago quarter.
Revenues of $8.83 billion increased 3.4% year over year and beat the consensus mark by 1.33%.
Shares of the company gained 8.6% in the after-hours trading session on Jan 23, driven by an increase of 13.12 million paid subscribers globally in the fourth quarter, with a rise of 1% in average revenue per subscription. It gained 7.66 million paid subscribers in the year-ago quarter.
The company attributed the robust top-line growth to its paid subscription-sharing offering (part of its password-sharing crackdown), recent price changes and the strength of its business in general. In October 2023, Netflix raised the price of its premium ad-free plan to $22.99 while its one-stream basic plan rose to $11.99.
On the ads front, ad-tier memberships increased 70% quarter over quarter. The ads plan now accounts for 40% of all Netflix sign-ups in the markets it has offered. Earlier this month, NFLX stated that the ad tier has surpassed 23 million monthly active users, which increased from eight million from its November update.
ARM increased 1% year over year, both on a reported basis and a foreign-exchange neutral basis in the fourth quarter. The company had guided “roughly flat year-over-year” ARM due to limited price increases over the last 18 months, as well as price reductions in some countries at the beginning of 2023, which were partially offset by price increases in the United States, United Kingdom and France in the fourth quarter of 2023.
At the end of the fourth quarter, Netflix had 260.28 million paid subscribers globally, up 12.8% 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.
The company credited gains to the strength of its intellectual property, including Squid Game: The Challenge, a reality show based on its most-watched TV series, new original series, such as All the Light We Cannot See, feature films like Zack Snyder's Rebel Moon: A Child of Fire and non-English-language programming, including the third season of Lupin from France.
It also cited strong demand for licensed titles, such as Young Sheldon, besides strong viewership for the final season of the long-running royal drama The Crown and David Fincher's original film, The Killer.
The recent deal with WWE marks the streaming service’s first serious foray into live events as it seeks to fend off competition from rivals, such as Amazon and Disney.
It marks the first time in more than three decades that Raw will not be broadcast live on a traditional TV channel. Raw will air each week on Netflix in the United States, United Kingdom, Canada and Latin America, with additional countries to be added over time.
Netflix will also host other WWE shows and specials outside the United States, including SmackDown and Royal Rumble, as well as documentaries and series from next year.
Netflix’s Segmental Revenue Details
The United States and Canada (UCAN) reported revenues of $3.93 billion, which rose 9.3% year over year and accounted for 44.5% of total revenues. ARPU increased 2.5% from the year-ago quarter.
The paid subscriber base for UCAN increased 7.8% from the year-ago quarter to 80.13 million. The company gained 2.81 million paid subscribers compared with the year-ago quarter’s gain of 0.91 million.
Europe, Middle East & Africa (EMEA) reported revenues of $2.78 billion, which increased 18.5% year over year and accounted for 31.5% of total revenues. ARPU remained flat year over year.
The paid subscriber base for EMEA increased 15.7% from the year-ago quarter to 88.81 million. Netflix gained 5.05 million paid subscribers compared with the year-ago quarter’s net gain of 3.2 million.
Latin America’s (LATAM) revenues of $1.15 billion increased 13.7% year over year, contributing 13.1% of total revenues. ARPU increased 83.6% from the year-ago quarter.
The paid subscriber base for LATAM rose 10.3% from the year-ago quarter to 46 million. It gained 2.35 million paid subscribers in the reported quarter.
Asia Pacific’s (APAC) revenues of $963 million increased 12.4% year over year and accounted for 10.9% of total revenues. ARPU decreased 4.9% year over year.
The paid subscriber base for APAC jumped 19.3% from the year-ago quarter to 45.34 million. The company added 2.91 million paid subscribers in the quarter.
Operating Details
Marketing expenses increased 64.1% year over year to $916.6 million. As a percentage of revenues, marketing expenses expanded 380 basis points (bps) to 10.4%.
Operating income decreased 21.9% year over year to $1.49 billion. Operating margin contracted 550 bps on a year-over-year basis to 16.9%.
Balance Sheet & Free Cash Flow
Netflix had $7.11 billion of cash and cash equivalents as of Dec 31, 2023 compared with $7.87 billion as of Sep 30, 2023.
Total debt was $14.54 billion as of Dec 31, 2023 compared with $14.3 billion as of Sep 30, 2023.
Streaming content obligations were $21.71 billion as of Dec 31, 2023 compared with $19.65 billion as of Sep 30, 2023.
Netflix reported a free cash flow of $1.58 billion compared with a free cash flow of $1.89 billion in the previous quarter.
It repurchased 5.5 million shares worth $2.5 billion in the reported quarter.
Guidance
For the first quarter of 2024, Netflix forecasts revenues to increase 16% on a F/X neutral basis. The company has projected earnings of $4.49 per share, suggesting growth of 55.9% year over year or 12% on a foreign-exchange neutral basis. The Zacks Consensus Estimate for the same is pegged at $4 per share, currently lower than the company’s expectation.
Total revenues are anticipated to be $9.24 billion, suggesting growth of 13.2% year over year or 12% on a foreign-exchange neutral basis. The consensus mark for revenues is pinned at $9.28 billion, higher than the company’s expectation.
The quarterly operating margin is projected at 26.2% compared with the 21% reported in the year-ago quarter. Netflix expects global ARM to be up year over year on a F/X neutral basis in the first quarter.
For the first quarter 2024, Netflix expects paid net sub additions to be down sequentially (reflecting seasonality as well as possible pull forward from the strong Q4 2023 results) but up year over year by 1.8 million.
For 2024, the company expects healthy double digit revenue growth on a F/X neutral basis, driven by a rise in membership as well as improvement in F/X neutral ARM.
Netflix is increasing full-year 2024 operating margin forecast from 22 to 24% (based on F/X rates as of Jan 1, 2024). This reflects the weakening of the U.S. dollar compared with other currencies since October as well as stronger-than-forecasted fourth-quarter 2023 performance.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 12.31% due to these changes.
VGM Scores
Currently, Netflix has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Netflix has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Netflix (NFLX) Up 5.2% Since Last Earnings Report: Can It Continue?
It has been about a month 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 the most recent earnings report in order to get a better handle on the important catalysts.
Netflix Q4 Earnings Miss, Revenues Rise Y/Y on User Gain
Netflix reported fourth-quarter 2023 earnings of $2.11 per share, which missed the Zacks Consensus Estimate by 4.09%. The figure surged from 12 cents reported in the year-ago quarter.
Revenues of $8.83 billion increased 3.4% year over year and beat the consensus mark by 1.33%.
Shares of the company gained 8.6% in the after-hours trading session on Jan 23, driven by an increase of 13.12 million paid subscribers globally in the fourth quarter, with a rise of 1% in average revenue per subscription. It gained 7.66 million paid subscribers in the year-ago quarter.
The company attributed the robust top-line growth to its paid subscription-sharing offering (part of its password-sharing crackdown), recent price changes and the strength of its business in general. In October 2023, Netflix raised the price of its premium ad-free plan to $22.99 while its one-stream basic plan rose to $11.99.
On the ads front, ad-tier memberships increased 70% quarter over quarter. The ads plan now accounts for 40% of all Netflix sign-ups in the markets it has offered. Earlier this month, NFLX stated that the ad tier has surpassed 23 million monthly active users, which increased from eight million from its November update.
ARM increased 1% year over year, both on a reported basis and a foreign-exchange neutral basis in the fourth quarter. The company had guided “roughly flat year-over-year” ARM due to limited price increases over the last 18 months, as well as price reductions in some countries at the beginning of 2023, which were partially offset by price increases in the United States, United Kingdom and France in the fourth quarter of 2023.
At the end of the fourth quarter, Netflix had 260.28 million paid subscribers globally, up 12.8% 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.
The company credited gains to the strength of its intellectual property, including Squid Game: The Challenge, a reality show based on its most-watched TV series, new original series, such as All the Light We Cannot See, feature films like Zack Snyder's Rebel Moon: A Child of Fire and non-English-language programming, including the third season of Lupin from France.
It also cited strong demand for licensed titles, such as Young Sheldon, besides strong viewership for the final season of the long-running royal drama The Crown and David Fincher's original film, The Killer.
The recent deal with WWE marks the streaming service’s first serious foray into live events as it seeks to fend off competition from rivals, such as Amazon and Disney.
It marks the first time in more than three decades that Raw will not be broadcast live on a traditional TV channel. Raw will air each week on Netflix in the United States, United Kingdom, Canada and Latin America, with additional countries to be added over time.
Netflix will also host other WWE shows and specials outside the United States, including SmackDown and Royal Rumble, as well as documentaries and series from next year.
Netflix’s Segmental Revenue Details
The United States and Canada (UCAN) reported revenues of $3.93 billion, which rose 9.3% year over year and accounted for 44.5% of total revenues. ARPU increased 2.5% from the year-ago quarter.
The paid subscriber base for UCAN increased 7.8% from the year-ago quarter to 80.13 million. The company gained 2.81 million paid subscribers compared with the year-ago quarter’s gain of 0.91 million.
Europe, Middle East & Africa (EMEA) reported revenues of $2.78 billion, which increased 18.5% year over year and accounted for 31.5% of total revenues. ARPU remained flat year over year.
The paid subscriber base for EMEA increased 15.7% from the year-ago quarter to 88.81 million. Netflix gained 5.05 million paid subscribers compared with the year-ago quarter’s net gain of 3.2 million.
Latin America’s (LATAM) revenues of $1.15 billion increased 13.7% year over year, contributing 13.1% of total revenues. ARPU increased 83.6% from the year-ago quarter.
The paid subscriber base for LATAM rose 10.3% from the year-ago quarter to 46 million. It gained 2.35 million paid subscribers in the reported quarter.
Asia Pacific’s (APAC) revenues of $963 million increased 12.4% year over year and accounted for 10.9% of total revenues. ARPU decreased 4.9% year over year.
The paid subscriber base for APAC jumped 19.3% from the year-ago quarter to 45.34 million. The company added 2.91 million paid subscribers in the quarter.
Operating Details
Marketing expenses increased 64.1% year over year to $916.6 million. As a percentage of revenues, marketing expenses expanded 380 basis points (bps) to 10.4%.
Operating income decreased 21.9% year over year to $1.49 billion. Operating margin contracted 550 bps on a year-over-year basis to 16.9%.
Balance Sheet & Free Cash Flow
Netflix had $7.11 billion of cash and cash equivalents as of Dec 31, 2023 compared with $7.87 billion as of Sep 30, 2023.
Total debt was $14.54 billion as of Dec 31, 2023 compared with $14.3 billion as of Sep 30, 2023.
Streaming content obligations were $21.71 billion as of Dec 31, 2023 compared with $19.65 billion as of Sep 30, 2023.
Netflix reported a free cash flow of $1.58 billion compared with a free cash flow of $1.89 billion in the previous quarter.
It repurchased 5.5 million shares worth $2.5 billion in the reported quarter.
Guidance
For the first quarter of 2024, Netflix forecasts revenues to increase 16% on a F/X neutral basis. The company has projected earnings of $4.49 per share, suggesting growth of 55.9% year over year or 12% on a foreign-exchange neutral basis. The Zacks Consensus Estimate for the same is pegged at $4 per share, currently lower than the company’s expectation.
Total revenues are anticipated to be $9.24 billion, suggesting growth of 13.2% year over year or 12% on a foreign-exchange neutral basis. The consensus mark for revenues is pinned at $9.28 billion, higher than the company’s expectation.
The quarterly operating margin is projected at 26.2% compared with the 21% reported in the year-ago quarter. Netflix expects global ARM to be up year over year on a F/X neutral basis in the first quarter.
For the first quarter 2024, Netflix expects paid net sub additions to be down sequentially (reflecting seasonality as well as possible pull forward from the strong Q4 2023 results) but up year over year by 1.8 million.
For 2024, the company expects healthy double digit revenue growth on a F/X neutral basis, driven by a rise in membership as well as improvement in F/X neutral ARM.
Netflix is increasing full-year 2024 operating margin forecast from 22 to 24% (based on F/X rates as of Jan 1, 2024). This reflects the weakening of the U.S. dollar compared with other currencies since October as well as stronger-than-forecasted fourth-quarter 2023 performance.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 12.31% due to these changes.
VGM Scores
Currently, Netflix has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Netflix has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.