Netflix Inc.’s (NASDAQ:NFLX) impending quarterly financial reports won’t be pleasant, but the fact that investors’ expectations are already relatively low suggests that there aren’t many chances that revenue or profitability would miss projections. Additionally, the low near-term forecast for the company has been essentially accounted for in NFLX’s current mid-teens ahead P/E value multiple. Consequently, NFLX is not a Sell. Speaking personally, the investment rating for Netflix Inc.’s (NASDAQ:NFLX) shares are a Hold.
Netflix, on the other hand, also is not deserving of a Buy ranking. The market anticipates that beginning in FY 2024, NFLX will increase its profitability and provide greater revenue growth. This is overly optimistic, in my opinion, given that Netflix hasn’t yet demonstrated its ability to execute its measures to crack down on multiple logins and the ad-supported tier.
Netflix Stock Key Metrics
Before assessing the NFLX stock’s future financial prospects, there are a few important metrics that one has to keep an eye on. According to a Variety story from June 28, 2022, “Netflix ranks worst among streamers for perceived value.” Whip Media’s 2022 Streaming Satisfaction Report was used to make this point. The survey results from Whip Media show that 69% of former Netflix customers stated the price increases drove them to stop using the service.
The results of Whip Media’s study are in line with subscriber information offered by Antenna, which shows that NFLX’s US “Active Monthly Churn Rate increased +0.95pts month-over-month in Jan-22” following the implementation of fresh pricing increases. The increase in churn at Netflix by +95 basis points was the largest month-over-month increase since September 2020.
To combat subscriber attrition, Netflix has put in place two critical measures that will aid in future subscriber growth. The first move is the launch of a new membership tier with advertising support, and the second is the crackdown on shared logins.
When Does Netflix Report Earnings?
According to the company’s prior announcement on June 15, 2022, Netflix will release its financial results for the second quarter of 2022 on July 19, 2022.
What To Expect From Earnings.
There are low hopes for NFLX’s financial results in the second quarter of 2022. Netflix is covered by 44 sell-side analysts. A total of 30 Wall Street analysts are said to have decreased their respective second-quarter top-line projections for NFLX during the past three months, while no analyst increased their respective Q2 revenue estimates for Netflix. According to the consensus financial forecasts, NFLX’s YoY revenue growth would drop from +19.4% in Q2 2021 and +9.8% in Q1 2022 to +9.6% in Q2 2022.
Similar to how only 11 sell-side analysts upped their second-quarter bottom-line expectations for NFLX, 16 sell-side analysts reduced their Q2 2022 EPS estimates for Netflix downward in the last three months. The market anticipates a -16% QoQ decline in NFLX’s non-GAAP adjusted EPS, from $3.53 in Q1 2022 to $2.97 in Q2 2022.
How Profitable Is Netflix?
Additionally to other measures like revenue growth and customer turnover, profitability is a crucial metric for NFLX. Netflix underlined that its “annual GAAP operating margin” increased from 7% in FY 2017 to 21% in FY 2021 on the FAQ page of its investor relations website. According to statistics from S&P Capital IQ, throughout this time NFLX’s non-GAAP normalized net profit margin increased from 4.8% to 17.2%.
Looking ahead, NFLX stated in the section of its IR website devoted to frequently asked questions that it aims to achieve an operating profit margin of 20% during “our current period of slower revenue growth” and emphasized that “we intend to steadily grow our operating margin” when “we re-accelerate revenue growth.”
What Is Netflix’s Long-Term Forecast?
The profitability guidance provided by the firm on its investor relations website, which was referred to in the previous section, is consistent with the sell-consensus side’s long-term financial projections for Netflix.
In fiscal 2022 and 2023, analysts expect Netflix (NASDAQ:NFLX) to generate operating profit margins of 19.6% and 20.4%, respectively. During these two years, the company is expected to post annual sales growth rates below 10%. Wall Street anticipates Netflix’s annual top-line growth to increase to 10% or more during the FY 2024–2026 timeframe, which will support the anticipated rise in Netflix’s profitability. According to the market’s consensus financial projections, NFLX’s operating margins are anticipated to increase to 22.0%, 24.0%, and 26.2 %, respectively, for the fiscal years 2024, 2025, and 2026.
The long-term forecast from Netflix seems overly optimistic. Long-term revenue and subscriber growth, a more favorable revenue mix with the addition of higher-margin advertising revenue, and positive operating leverage are all necessary for Netflix’s operating profit margins to significantly expand.
Is NFLX Stock A Buy, Sell, or Hold?
NFLX is a Hold. Negative surprises are not anticipated for Q2 2022 because there are already low expectations for the current quarter and Netflix’s valuations have substantially declined. NFLX’s consensus forward next twelve months normalized P/E multiple has shrunk from its one-year peak of 40.7 times to 16.7 times at this moment, according to valuation data from S&P Capital IQ. On the other hand, I believe that Netflix might not be able to meet long-term market expectations for operating profit margins and revenue growth.
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