• Netflix is set to announce strong EPS and revenue growth

• Subscribers and ad revenue may take center stage

• High valuation and performance increase downside risks

• The streaming giant publishes results on Thursday, after the closing bell

Analysts expect stellar performance

On April 18, Netflix is scheduled to announce its earnings results for Q1 2024, with expectations pointing to earnings-per-share (EPS) of $4.52, marking an outstanding increase of 56.81% from the same reporting period of 2023, and more than doubling the $2.11 EPS of Q4 2023.

Strong growth is anticipated in revenue as well, with analysts calculating a 13.6% y/y increase to $9.3bn. In Q4, revenue grew 12.5% y/y to $8.8bn.

Although the streaming giant’s share price may well be impacted by deviations of the EPS and revenue metrics from their forecasts, investors may once again pay special attention to the number of new subscribers and the revenue part deriving from advertisements.

Did the positive trends in subs and ads continue?

Despite implementing measures against password sharing, Netflix exceeded expectations in subscriber growth in 2023, with Q4 bringing 13mn new subscribers and taking the total user base to a record of 260.28mn paid subscriptions. So, it will be interesting to see whether the positive trend continued even as existing customers in the US are still able to add members outside their households for an additional fee of $8, a service Netflix began offering last spring.

The advertising-tier plan seems to be also gaining interest. Results for Q4 pointed to a total of 23mn global users, up from around 15mn in Q3. The plan seems to be very appealing to price-sensitive customers as it is priced at $7 in the US, and still offers full high-definition video quality. This plan is expected to bring in more revenue per user than the Standard plan, as ad revenue seems to more than offset the discount for the tier.

High valuation and strong performance reasons for caution

From a valuation perspective, if we blend it with the ‘Magnificent 7’ group, Netflix appears to be the fourth most expensive stock, but its forward-price-to-earnings (P/E) ratio remains well below its 5-year moving average.

Netflix has experienced massive gains since May 2022, and it holds the third place among the group in terms of performance since October, when the latest tech rally on Wall Street began.

With all that in mind, if solid revenue growth and a strong EPS are accompanied by more new subscribers than the 4.75mn forecast suggests, Netflix’s stock may extend its uptrend and aim for the record high it hit in November 2021, due to pandemic-related lockdowns boosting subscriptions.

However, the stock’s high valuation and performance increase the downside risks in case of a disappointment. Since the beginning of the year, the market has priced out a significant amount of basis points worth of rate cuts by the Fed for this year, while the company itself has been projecting a slowdown in free cash flows for 2024. If the firm announces similar projections on Thursday, present value estimates may drift lower.

Having said all that though, any setback on a potential disappointment may only evolve into a corrective phase as the firm expects free cash flow to accelerate again in 2025, when the Fed may cut interest rates faster than in 2024.

Overly bullish technical picture

From a technical standpoint, Netflix has been in a long-term uptrend since May 2022, with the trend accelerating in October 2023, and the stock hitting a nearly two-and-a-half-year high last week, at around $639.

Another round of solid results on Thursday could push the price above that level, with investors perhaps putting on their radar the stock’s record high of $701. On the other hand, a disappointing report could push the stock below the crossroads of the $597 barrier and the uptrend line drawn from the low of October 18. Such a move could signal the beginning of a deeper correction, with the next support barrier found at around $548, marked by the low of February 13.