Netflix (NASDAQ:NFLX) is set to release its second-quarter 2024 results on July 18, and investors are keenly watching to see how the streaming giant performs. For this quarter, Netflix forecasts a revenue increase of 16%, which translates to a 21% growth on a foreign exchange (F/X) neutral basis. This adjustment considers price changes in Argentina and the devaluation of the local currency against the U.S. dollar.
The company anticipates total revenues to reach $9.491 billion, marking a 15.9% year-over-year growth. However, the Consensus Estimate for revenues is slightly higher, pegged at $9.53 billion. Netflix also projects earnings of $4.68 per share, indicating a substantial growth of 42.2% from the previous year. The Consensus Estimate for earnings is slightly higher at $4.70 per share, a figure that has remained unchanged over the past 30 days.
One of the key drivers of Netflix’s anticipated success in the second quarter is its diversified content portfolio. The company has heavily invested in producing and distributing localized and foreign-language content, which has resonated well with its global audience.
Earnings Surprise History
In the last reported quarter, Netflix delivered an earnings surprise of 17.07%. The company has exceeded the Consensus Estimate in three of the last four quarters, with an average negative surprise of 9.29%.
Factors Shaping Upcoming Results
Netflix expects a seasonal decline in paid net additions for the second quarter of 2024 compared to the first quarter. However, it also projects year-over-year growth in global Average Revenue per Membership (ARM) on an F/X basis. The company’s strategic initiatives, including the introduction of ad-supported, low-priced plans and a crackdown on password sharing through paid sharing options in over 100 countries (representing more than 80% of Netflix’s revenue base), are expected to contribute to top-line growth.
These initiatives, along with Netflix’s expanding games portfolio featuring titles like Grand Theft Auto: The Trilogy, are likely to have enhanced user engagement and boosted the subscriber base in the second quarter. Despite these positive factors, Netflix continues to face significant challenges in the highly competitive streaming landscape. The company contends with robust rivals such as Disney+, Warner Bros. Discovery’s HBO Max, Peacock, Paramount+, Apple’s Apple TV+, and Amazon Prime Video. Additionally, Netflix competes for consumer attention against traditional linear TV, YouTube, short-form content platforms like TikTok, and the gaming industry. This intense competition for viewers’ time and subscription dollars remains a persistent headwind for Netflix.
Top-Line Growth Estimates for Q2
The Consensus Estimate for paid total streaming net membership additions is pegged at 5.41 million. For regional performance, the consensus marks for the second quarter of 2024 include:
Asia-Pacific Revenues: $1.03 billion, indicating a 12.9% growth year-over-year.
Latin America Revenues: $1.18 billion, suggesting a 9.9% rise from the previous quarter.
EMEA Revenues: $3.03 billion, marking an 18.5% increase year-over-year.
United States and Canada Revenues: $4.26 billion, showing an 18.4% rise year-over-year.
Price Performance & Valuation
Shares of Netflix have gained 38.4% year-to-date, outperforming the Consumer Discretionary sector, which saw rises of 16.6%, 22%, and 7.3% for Apple and Disney, respectively. In contrast, shares of Warner Bros. Discovery have dropped 38.4% in the same period.
Netflix is currently trading at 6.85 times forward 12-month sales, above its five-year median of 6.02 times. Meanwhile, the Broadcast Radio and Television industry’s forward earnings multiple sits at 4.43 times, suggesting that Netflix’s valuation is somewhat stretched compared to its historical range and industry average.
Investment Considerations: Balancing Risk and Reward
Netflix presents a compelling investment opportunity as a dominant force in the global streaming industry. The company’s unparalleled content production capabilities consistently deliver hit shows and movies, driving subscriber growth and retention. Netflix’s strategic expansion into ad-supported tiers and gaming diversifies revenue streams while broadening its market reach. The crackdown on password sharing is poised to unlock significant untapped revenue potential. With a robust international presence and data-driven content creation, Netflix is well-positioned to capitalize on the growing global demand for streaming entertainment.
Final Thoughts
Despite a premium valuation and fierce competition in the streaming sector, Netflix remains a compelling investment. Its first-mover advantage, extensive global footprint, and track record of producing culturally significant content set it apart. These factors, combined with Netflix’s ability to adapt and innovate, suggest it is well-equipped to maintain market leadership and capitalize on the growing digital entertainment landscape. This makes the stock worth considering ahead of its second-quarter earnings report.
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