Should Investors Buy the Spike in Netflix Stock After Q1 Earnings?

Netflix NFLX shares had spiked +3% in this morning's trading session as the streaming giant was able to impressively surpass its Q1 earnings expectations before the Easter Holiday last Thursday.   

This comes as the broader market has experienced another selloff following the extended holiday weekend, with President Trump's tariffs and his bashing of Fed Chair Jerome Powell to cut interest rates in focus.

Netflix’s Q1 Results

Netflix’s Q1 earnings came in at $2.89 billion or $6.61 a share, surpassing EPS expectations of $5.69 by 16% and climbing 25% from $5.28 per share a year ago on net income of $2.33 billion. Year over year, Q1 sales rose over 12% to $10.54 billion, although this slightly missed the Zacks Consensus by 0.04%.

Notably, Netflix attributed the favorable quarterly results to its successful subscription plans and advertising revenue. It’s also noteworthy that Netflix will no longer provide quarterly subscriber data as the company shifts its focus to revenue growth, among other financial metrics and performance indicators. That said, Netflix has exceeded sales estimates in three of its last four quarterly reports and has surpassed the Zacks EPS Consensus for five consecutive quarters.

Netflix’s Positive Guidance

Looking ahead, Netflix expects Q2 sales at $11 billion which came in above Zacks estimates of $10.96 billion or 14% growth (Current Qtr below). More reassuring is that Netflix expects Q2 EPS at $7.03 and above the current Zacks Consensus of $6.22 per share or 27% growth.

Furthermore, Netflix still projects full-year revenue between $43.5 billion-$44.5 billion, which falls in range with Zacks projections of $44.4 billion or 14% growth. Based on Zacks estimates, Netflix’s top line is projected to expand another 11% in fiscal 2026 to $49.44 billion.

Why NFLX has been a Defensive Hedge

Piggybacking on Netflix’s successful subscription plans, analysts have pointed out that the streaming king may be able to sustain and even grow its subscriber base amid economic uncertainty, thanks to its more affordable ad-supported plan, which is offered at $7.99 a month. Optimistically, the ad-supported plan should help the notion of "Netflix and Chill" if consumers need to save on dining out or other entertainment expenses. 

Correlating with such optimism, Netflix stock is up +11% year to date compared to the benchmark S&P 500’s 10% decline and the Nasdaq’s -18%. More impressive, over the last two years, NFLX has skyrocketed +200% to largely outperform the broader index’s returns of roughly +30%.

Monitoring Netflix’s P/E Valuation

Trading around $1000 a share, Netflix stock is at a 39.7X forward earnings multiple. While this is a premium to the benchmark's 20.3X and its main streaming competitor Disney’s DIS 15.5X, NFLX does trade at a significant discount to its five-year high of 88.5X forward earnings and is closer to the median of 37.3X during this period.

Bottom Line

For now, Netflix stock lands a Zack Rank #3 (Hold). However, it wouldn’t be surprising if a buy rating is on the way, given Netflix’s favorable Q1 report and guidance. To that point, earnings estimate revisions may rise in the coming weeks, which would be indicative of more short-term upside and help level Netflix’s P/E valuation if an extended rally from its current levels hasn’t already continued.

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

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