What To Expect From Netflix’s Q4 Results?

Netflix (NASDAQ:NFLX) is slated to report its Q4 2022 results on January 19th.  We estimate that Netflix’s revenue will come in at about $8 billion for the quarter, marginally ahead of the consensus estimate of about $7.82 billion. This would mark year-over-year growth of about 4%, although it would be down from close to 16% growth in the same quarter last year. We estimate that earnings will stand at close to $0.30 per share, compared to a consensus of $0.44 per share. So what are some of the trends that are likely to drive Netflix results? 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.

Netflix has guided that it could add about 4.5 million subscribers over the quarter, compared to 2.41 million subscribers in the previous quarter. However, this would still mark a decline from the 8.3 million subscribers the company added in Q4 2021.  Growth is likely to have been driven by an improving content slate and the recent launch of the company’s advertising-supported tier called “Basic with Ads” which went live in early November. The plan is priced at $7 per month, $3 below the current Basic plan. The more affordable plan should help Netflix at a time when discretionary spending is easing while competition from the likes of Apple, Disney, and Paramount is mounting.

While Q4 is typically the company’s weakest quarter in terms of operating margins due to higher marketing and content spending, things are expected to be worse this time around, with Netflix projecting margins of just about 4% versus 8% in the year-ago period. This is likely due to the launch of the new ad-supported tier as well as mounting currency headwinds with the U.S. Dollar index up by over 7% over the past year. The foreign exchange typically has a more pronounced impact on Netflix’s margins, compared to its revenue, as the company’s cost base is largely dollar-denominated, with about 60% of revenue coming from overseas.

We were bullish on Netflix stock when it fell to five-year lows around mid-2022. However, the stock has recovered considerably since then, rising by over 60% over the last six months. At the current market price of about $315 per share, Netflix trades at about 30x forward earnings which is not very attractive considering multiple headwinds including the potential U.S. recession and concerns about the effectiveness of Netflix ad-supported plans. A few weeks ago Digiday – an online trade magazine – reported that the streaming giant was returning advertisers’ money for ads that had not yet run, indicating that there were instances where Netflix only delivered about 80% of the expected audience to advertisers. We currently remain neutral on Netflix stock, with a price estimate of $322 per share, which is roughly in line with the current market price.  See our analysis Netflix Valuation: Expensive or Cheap for more details on what’s driving our price estimate for Netflix. Also, check out on the analysis of Netflix Revenue for more details on how Netflix revenues are trending.

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