Netflix to Report Q3 Earnings: Will the Stock's Rally Continue?
Netflix to Report Q3 Earnings: Will the Stock's Rally Continue?
The company is moving forward on its ad-supported plans, but investors won’t soon be provided metrics on that segment
- Netflix is scheduled to report earnings after the bell on Thursday.
- Earnings per share are expected to cross the wires at $5.09 vs. $3.73 a year ago.
- The company has outpaced the Nasdaq by about three times since August.
Netflix (NFLX) is scheduled to announce third-quarter fiscal earnings on Thursday after the market close.
The stock has managed to outpace the tech-heavy Nasdaq, with a solid 12% gain from Aug. 1 to Oct. 15, as traders remain positive on the company's recent financial performance. The Nasdaq-100 (/NQ) rose just 3.5% during the same period.
What do investors expect from Netflix?
After adding 9 million customers in the first quarter and 8 million in the second, Netflix is expected to bring in an additional 4 million subscribers, according to estimates from the London Stock Exchange (LSEG). That would bring the total to 278 million customers. Now, we’ll have to see if offerings such as Bridgerton and The Perfect Couple lured in enough customers to beat the subscriber growth number. A beat on customer growth would likely be a best-case scenario for the stock.
This is one of the last quarters that Netflix will report subscriber numbers, underscoring a shift in the company’s strategy as customer growth slows. Instead, Netflix will focus on financial metrics, including revenue, costs and margins.
Analysts expect third-quarter earnings to cross the wires at $5.09 per share, which would be up from $3.73 a year ago, according to TradingView. It would also represent a gain from last quarter’s earnings of $4.88 per share. Revenue is expected to come in at $9.77 billion vs. $8.54 billion last year, but up only slightly from last quarter’s $9.56 billion.
Some strategies already in practice are focused on those metrics, such as the password crackdown. However, the gains from that move are expected to slow further in the coming quarters.
The company will also continue to move forward on its ad-supported plans, but investors won’t soon be given broken-down metrics on that segment. Executives have previously said those plans won’t see serious growth until next year.
Still, Netflix is focused on pushing more customers into those ad-supported plans, which are believed to bring in more revenue per user. The current ad-supported plan starts at $6.99 per month. Without ads, Netflix charges $15.49 per month, and its premium plan, which includes Ultra HD, is $22.99 per month. The company started phasing out the basic ad-free plan for $11.99 per month in the United States.
Trading Netflix through earnings
Netflix trades with an implied volatility rank (IVR) of 67.7, as of today. The expected move for earnings based on the Oct. 18 expiration is for +/- 54.25 points, representing a 7.7% move based on today’s stock price of 705.98. That said, if you expect NFLX to stay within the expected move, an iron condor could be employed to capture the IV crush from earnings. However, for those with a bias that the reaction will move beyond the expected move, a directional approach might be better-suited.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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