With Expectations Low, Can Netflix Spring A Q1 Surprise?

NFLX: Netflix logo

Netflix (NASDAQ:NFLX) is slated to report its Q1 2022 results on Tuesday, April 19. We estimate that Netflix’s revenue will come in at about $8 billion for the quarter, marginally ahead of the consensus estimate of about $7.9 billion. We project that Netflix’s earnings will stand at close to $3 per share, compared to the consensus of $2.90 per share. So what are some of the trends that are likely to drive Netflix results and does the stock look compelling?

Netflix’s growth is likely to cool meaningfully from last year as the Covid-19 related tailwinds ease for the company, with people increasingly venturing outdoors, relying a little less on streaming services for entertainment. For perspective, we estimate that Netflix’s revenue growth will come in at just about 11%, compared to 21% year-over-year growth in Q1 2021. Netflix has also projected a considerably slower subscriber additions of just 2.5 million for Q1, down from around 4 million in Q1 2021 and over 8 million in Q4 2021. The company attributes this partly to its content release schedule, which was timed toward the end of the quarter. For example, season two of the hit show Bridgerton and the company’s original film, The Adam Project, were both released only in March. Separately, Netflix also suspended its service in Russia in early March, following the Russian invasion of Ukraine and this could also have a marginal impact on subscriber numbers. See our interactive dashboard analysis on Netflix Earnings Preview for more details on how Netflix’s revenues and earnings are likely to trend for the quarter.

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Now, Netflix stock remains down by over 40% year-to-date, due to its slowing growth rates and weak Q1 subscriber add guidance. However, with Netflix stock priced at about $350 per share, it is trading at levels last seen around January 2020, prior to the global Covid-19 pandemic. However, Netflix has made considerable progress since then. For example, the company has grown its subscriber base by close to 33% since the end of 2019, despite two price increases over the period, with its churn rates remaining the lowest in the streaming business. Netflix EPS has also grown by over 2.5x. Netflix’s valuation multiples are also compelling. The stock now trades at just about 31x projected 2022 consensus earnings and about 25x 2023 consensus, down from levels of over 90x prior to the pandemic. We believe that Netflix should continue to grow revenues at double-digit levels going forward driven by its deep content pipeline, strong pricing power, and high levels of customer loyalty. We remain positive on Netflix stock, with a price estimate of $522 per share, which is about 50% ahead of the current market price. See our analysis Netflix Valuation: Expensive or Cheap for more details on what’s driving our price estimate for Netflix.

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Returns Apr 2022
MTD [1]
YTD [1]
Total [2]
 NFLX Return -8% -43% 178%
 S&P 500 Return -3% -8% 96%
 Trefis Multi-Strategy Portfolio -2% -9% 257%

[1] Month-to-date and year-to-date as of 4/12/2022
[2] Cumulative total returns since the end of 2016

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