Netflix is always the first major tech company who reports earnings, with the result to be released after the US markets close on Wednesday, 19 October. There is strong optimism about the company’s performance in the third quarter after it beat subscriber expectations in the second quarter, along with its plan for a new ad-supported tier. The company’s shares rebounded by about 35% from the low in July but still running a 62% year-to-date loss, and a 67% drop from the all-time high from November 2021. Whether the live streamer can keep its positive feedback from the subscriber battle with its rivals, and how big of a prospect towards its new TV plan will be in focus for the upcoming earnings.
A slowdown in earnings growth with all eyes on the new ad-supported tier prospect
Apart from the Ukraine war-induced loss in subscribers, the liver streamer faces fierce competition from Disney Plus, Amazon Prime, and Apple TV, Netflix lost 200,000 subscribers in the first quarter and another 970,000 in the second quarter, though it beat the expectation for a 2 million loss last time.
According to Zacks Consensus, Netflix’s EPS will be at $2.12, or a 33% down from a year ago, also a sharp decline from $3.20 in the second quarter. The revenue forecast is at $7.85 billion, or a 5% growth from a year ago, a slowdown from 9% in the prior quarter, also down from $7.97 billion in the second quarter. The company expects to grow new subscribers by 1 million in the third quarter, a slowdown from 4.4 million during the same period in 2021, but a jump in growth compared with the prior two quarters. Stranger Things Season 4 may have helped the viewer’s growth, as well as the strong tractions of Dahmer.
Amid a major slowdown in the growth of its subscribers, Netflix announced a cheaper but ad-supported plan earlier this year. The new tier will officially launch on 3 November for $6.99 per month, with an expectation to grow viewers by 40 million worldwide by the third quarter of 2023. The company will also charge people who share the same password as an existing subscriber. Therefore, the prospect for its future growth in subscribers and sales revenue is positive if this can be confirmed by the company in its outlook statement.
Getting cheaper in valuation
Netflix is one of the high-growth US tech shares with a current Price to Earnings (P/E) ratio sitting around 20, much lower than 65 at the beginning of this year. The 60% drop may have already reasonably priced in its slowdown in growth. Most analysts give a “hold” or “Neutral” grade for the company’s shares as the new ad-supported tier and revenue growth may offset the weakness of its third quarter’s earnings.
Technical AnalysisClick to enlarge the chart
Netflix’s shares have been in a range-bound movement between 208 to 250 since 13 July after the live streamer reported better-than-expected second-quarter earnings. The share’s price has ended its year-long downtrend with the potential to continue its rebounding attempt. The upcoming earnings may trigger a channel breakout, and an upside breakout of 208 may take the share price to fill the price gap in April and test the key resistance around 335.
On the flip side, a breakdown below the key support of 208 may press the shares further down to their year-low level around 161.
Disclaimer: CMC Markets is an order execution-only service. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.