Choose your trading platfom

Looking to stockpile back on Netflix? Here is the earnings preview

Netflix's earnings preview

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 Analysis

Click 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 Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.