Netflix Earnings Loom: Are You Still Watching?

The Q3 earnings season is now in full swing following the release of the big banks’ results, with the reporting docket remaining stacked for weeks. Results so far have been positive, with an above-average number of companies exceeding expectations.

Below is a chart illustrating Q3 earnings expectations, actual results from recent periods, and expectations for upcoming periods. As we can see, Q3 earnings are expected to grow +6.5% on +6.4% higher revenues, continuing the growth trajectory of recent quarters nicely.

On the docket this week is beloved Netflix NFLX, a company that has entirely changed its respective industry. NFLX shares have been big-time performers this year, outperforming on the back of consistently strong quarterly results that have revealed increasing demand for its lower-priced ad-supported tiers.  

What can investors expect from the titan? Let’s take a closer look at a few key metrics.

Netflix Has Ads Now?

Netflix’s ad-supported membership tiers were a big surprise to consumers initially, given its popularity for being ad-free, but the implementation has led to great results. A big crackdown on password sharing has also unlocked growth as it captures revenue from those sharing accounts.  

Ad-supported tiers reached 94 million monthly active users as of September, up from 70 million last November and clearly reflecting a very healthy level of consumer demand for lower-priced alternatives. Importantly, these ad-supported tiers provide a higher-margin revenue stream.

The margins picture for the company has already been improving nicely, as we can see below. Please note that the chart below tracks values on a trailing twelve-month basis.

It’s critical to note that strong ad sales in its latest period were a contributing factor to its current fiscal year guidance upgrade, further underpinning the momentum within the ad-supported tiers.

Ad revenue will likely be the metric taking the biggest focus, but its recent foray into live sports can’t be ignored either. Expect Netflix to spend considerable time on both topics, but the real growth driver behind the maturing company remains advertising.

EPS and revenue expectations have largely remained stable over recent months, with Netflix expected to see 27% EPS growth on 17% higher sales. Management expects the coming Q3 results to be driven by growth in members, pricing, and advertising revenue.

Bottom Line

Entertainment titan Netflix NFLX is on the reporting docket this week, reflecting one of the most highly-watched releases. Commentary will likely center around its ad-supported tiers and its foray into live sports, both of which have opened further avenues of growth as the company continues to mature.

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This article originally published on Zacks Investment Research (zacks.com).

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