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Earnings Preview: Netflix’s growth is in check

netflix

Netflix will report its fourth-quarter earnings after the US market closes on 19 January, which will be the first major US tech earnings to steer the market’s movements. The live streamer’s share price rebounded about 96% since July after beating analysts’ estimates in the last two earnings season. However, the stocks are still 50% lower than the high seen in November 2021. Its growth in subscribers is always key for investors to gauge the health of the company, especially in its ad-supported tier program that was introduced towards the end of last year. So how will Netflix add colour to the crucial US earnings season?

The ad-supported tier

New subscribers from the ad-supported plan will be a focus as it is seen as a new segment aiming to bring fast user recovery amid the severe among rivals, such as Disney+, Amazon Prime, and Apple TV+. Currently, Netflix’s streaming time accounts for 7.6% of the TV time, about 2.6 times of Amazon, and 1.5 times of Disney + and Hulu combined. The new ad-supported tier launched on 3 November for $6.99 per month of “Basic with Ads”, and the standard plan is $15.49 per month, and the premium plan is $19.99 per month. The live streamer expects to grow viewers by 40 million worldwide by the third quarter of 2023. But it has stopped providing guidance for user growth. Positive feedback from the new segment will certainly provide a promising growth recovery and take the share price to jump further, potentially another 50% from the current level of $326. However, a subdued subscriber growth could cause another selloff in the stocks.

It is doubtful if Netflix can keep the stable pace in its user's growth as it seems there is no a eye-catching movies that attract audiences in the final quarter, unlike Squid Game from last year and Stranger Things season 4 for the third quarter. Whether the paid plan can bring a growth as expected is also unsure. 

The numbers that you need to focus on

Amid the global headwinds, and fierce rival competition, Netflix lost 200,000 subscribers in the first quarter and another 970,000 in the second quarter but added 2.41 million in the third quarter, suggesting the live streamer may have picked up growth again. The company expects to add 4.5 million in new subscribers in the fourth quarter and $7.8 billion in revenue. According to Wall Street, Netflix’s EPS for the final quarter will be $7.83 billion. Or a 1.6% year-on-year growth. The earnings per share, however, are expected to be at $0.41, or a 43% plunge from a year ago.

Technical Analysis 

Source: CMC Markets NG as of 18 Jan. Click to enlarge the chart

 

Netflix’s shares have been moving in ascending channels since July 2022 when the company reported stronger-than-expected second-quarter earnings. The share’s price faces pivot resistance around 330 after filling the price gap in April 2022. A bullish breakout of this level may take the shares to further test the next medium-term resistance around 506, to fill the price gap in January 2022.

On the flip side, a weak earnings result could sink the stock again to drop towards its channel support and the 200-day moving average around 256. 


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