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Buy Netflix (NFLX) Stock On the Dip Before Q3 Earnings?

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Netflix (NFLX - Free Report) stock has suffered since its now infamous Q2 subscriber miss. But the streaming TV giant’s growth prospects look strong as it continues to bulk up on content, which includes a new movie starring global superstar Dwayne “The Rock” Johnson.

Now, with Netflix set to release its Q3 financial results on October 16, should investors think about buying NFLX stock on the dip? Citigroup (C - Free Report) analysts certainly think so.

Recent News & Overview

Netflix announced earlier this week that it landed the rights to a new Dwayne “The Rock” Johnson movie called John Henry and the Statesmen. The movie star released a teaser for the film to his 117 million Instagram (FB - Free Report) followers. And although it is a single film, Johnson is arguably one of most famous people in the world, who has also had major success at the box office over the last few years.

As the streaming TV market continues to grow, Netflix will have to push out more unique content to both keep and attract new subscribers. Netflix’s growing library of content is also set to include new interactive, choose-your-own-adventure style shows geared toward adults. Reed Hastings’ company is also set to roll out more content featuring A-list Hollywood stars.

Netflix did dethrone HBO’s 17-year streak for the most Emmy nominations this year. But going forward, the company will have to make even more critically acclaimed shows to better compete against Amazon (AMZN - Free Report) and Hulu, not to mention Apple (AAPL - Free Report) , Disney (DIS - Free Report) , and even AT&T (T - Free Report) .

Meanwhile, Citigroup analysts upgraded Netflix stock from “neutral” to a “buy” recently. Citi analyst Kevin Toomey also reiterated his $375 per share price target for Netflix. This represented a roughly 17% upside from Thursday’s closing price. "We view the recent sell-off as an opportunity to own a high-quality, recurring revenue franchise with attractive upside potential," Toomey wrote in a note to clients.

Shares of the Los Gatos, California-based powerhouse had plummeted roughly 12% over a five-day period through Thursday. This helped bring its total three-month decline to roughly 22%. NFLX stock did jump around 5% Friday as investors jumped back into tech stocks.

Q3 Outlook & Earnings Trends

Netflix has suffered since it fell short of its own subscriber projection by 1 million last quarter, which stood out against its impressive streak of subscriber beats.

Looking ahead, Netflix expects to add 650,000 subscribers in the U.S. and 4.35 million internationally in the third quarter. This growth would bring its subscriber total to 135.14 million. Meanwhile, our Non-Financial Metrics are both slightly higher than what Netflix projected at the start of the quarter. Netflix is projected to add 669,450 domestic subscribers and 4.40 million international members, based on our NFM estimates.

Our current Zacks Consensus Estimate is calling for Netflix’s Q3 revenues to surge by 33.7% to reach $3.99 billion. Plus, the streaming firm’s full-year revenues are projected to climb 35.7% to hit $15.87 billion.        

Moving onto the other end of the income statement, Netflix’s outlook appears even more impressive. NFLX is expected to see its adjusted quarterly earnings skyrocket 134.5% to reach $0.68 per share. Netflix’s adjusted full-year earnings are projected to soar 113.6%.

Netflix has also earned two upward earnings estimate revisions for Q3 over the last 60 days, against zero downward changes. However, NFLX’s fiscal 2018 and 2019 estimate revisions have trended in the wrong direction during this stretch.

Bottom Line

Netflix is currently a Zacks Rank #3 (Hold) because of its mixed earnings revision activity. Yet, NFLX stock is likely to perform based on its Q3 subscriber figures more than anything else.

With that in mind, Netflix’s executives might have been more cautious with their third-quarter subscriber projections as back-to-back misses could be devastating for Netflix stock. Therefore, it might not be a bad idea to think about buying Netflix ahead of the release of its quarterly earnings results.

Netflix is scheduled to release its Q3 financial results on Tuesday, October 16.

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