Streaming giant Netflix ( NFLX ) will release its first-quarter earnings on April 18. The company is expected to report growth in revenue and earnings over the prior year quarter. Therefore, is the stock a buy or sell before its earnings? Read on to learn my take.
Netflix, Inc.NFLX) is scheduled to report its first quarter results on April 18. Wall Street expects the streaming giant to post higher revenue and profit in the first quarter. With NFLX earnings expected soon, I've discussed why it might be wise to buy the stock now.
For the first quarter, NFLX's EPS and revenue are expected to grow 57.5% and 13.7% year-over-year to $4.54 billion and $9.28 billion, respectively. The company reported that it added 13.1 million subscribers during the fourth quarter, which was well above Wall Street expectations. Additionally, NFLX's global paid streaming memberships grew 12.8% year-over-year to 260.28 million.
For fiscal 2024, the company expects solid double-digit revenue growth driven by continued membership growth and investments in its advertising business. NFLX raised its 2024 operating margin forecast from 22% to 23% to 24%. It expects its first-quarter revenue to rise 13.2% year over year to $9.24 billion, and its operating income and margin to come in at $2.42 billion and 26.2%, respectively.
Additionally, the Los Gatos, California-based company expects its net income and EPS to be $1.98 billion and $4.49, respectively. However, the company expects net premiums paid to decrease sequentially, but to increase by 1.8 million year-over-year. NFLX stock has gained 70.7% over the past six months and 79.3% over the past year to close the last trading session at $607.15.
Here's what you might want to consider before the next earnings release:
Strong finances
NFLX's revenue for the fiscal fourth quarter ended Dec. 31, 2023, rose 12.5% from a year earlier to $8.83 billion. Its operating income reached $1.50 billion, up 172.1% year-over-year. The company's net income and EPS were up significantly over the prior-year quarter to $937.84 million and $2.11, respectively. Also, its non-GAAP free cash flow grew 375.9% year-over-year to $1.58 billion.
For the fiscal year ended December 31, 2023, NFLX's revenue rose 6.7% year-over-year to $33.72 billion. Its operating income rose 23.5% over the year-ago period to $6.95 billion. The company's net income rose 20.4% year over year to $5.41 billion. Its EPS came in at $12.03, representing a year-over-year increase of 20.9%. Additionally, its non-GAAP free cash flow increased 327.9% year-over-year to $6.93 billion.
Favorable analyst ratings
Analysts expect NFLX's fiscal 2024 EPS and revenue to grow 43.2% and 14.4% year-over-year to $17.22 billion and $38.58 billion, respectively. Its fiscal 2025 EPS and revenue are expected to grow 23.2% and 12% year-over-year to $21.22 billion and $43.21 billion, respectively.
Similarly, analysts expect NFLX's EPS and revenue for the quarter ending June 30, 2024, to grow 38.2% and 16.3% year-over-year to $4.55 billion and $9.52 billion, respectively.
Extended assessment
In terms of non-GAAP forward P/E, NFLX's 35.25x is 176.6% higher than the industry average of 12.75x. Its forward EV/Sales of 7.07 times is 293.2% higher than the industry average of 1.80 times. Likewise, it's 27.35x ahead EV/EBITDA is 262.7% higher than the industry average of 7.54x.
High profitability
In terms of trailing 12-month EBITDA margin, NFLX's 21.68% is 17.2% higher than the industry average of 18.50%. Likewise, its trailing 12-month asset turnover ratio of 0.69x is 43.7% higher than the industry average of 0.48x. Additionally, its 26.15% trailing 12-month return on equity is 795.7% higher than the industry average of 2.92%.
POWR Ratings Show the Promise
NFLX has an overall rating of B, equal to a Buy in our ownership POWR Ratings the system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal scale.
Our proprietary rating system also rates each stock based on eight different categories. NLFX has a grade of B for Quality, consistent with its high profitability.
It has a Sentiment grade of B, which is in sync with its favorable analyst ratings.
NFLX is ranked #18 out of 53 stocks in the Page industry. Click here to access NFLX's Growth, Value, Momentum and Stability ratings.
end
NFLX expects a strong start to the year, with first quarter revenue and earnings up over last year's quarter. The company is seeing strong growth in its ad-based plan, surpassing 23 million global monthly active users, more than 50% from the 15 million reported in November last year. Given its strong content portfolio, it is likely to be one of the main beneficiaries of the decline in cable TV services.
It also announced its entry into live entertainment, signing a deal with TKO Group Holdings to carry WWE's flagship wrestling program “Raw” starting in January 2025. Additionally, its gaming business is slowly gaining ground and expected continue to gain higher user engagement and downloads throughout the year. Meanwhile, its advertising business is expected to significantly boost its top-line growth in 2025 and beyond.
Given its strong financial position, favorable analyst ratings and high profitability, it might be wise to buy the stock now.
How it works Netflix, Inc. (NFLX) Stack up against her colleagues?
While NFLX has an overall grade of B, which equates to a Buy rating, you can also check out these other stocks rated A (Strong Buy) or B (Buy) within Page industry: Despegar.com, Corp. (CLEFT), Travelzoo (TZOO), and Amazon.com, Inc. (AMZN). To explore more online stocks, Click here.
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Shares of NFLX were down $3.15 (-0.52%) in premarket trading on Tuesday. Year-to-date, NFLX has gained 24.70%, versus a 6.46% gain in the benchmark S&P 500 over the same period.
About the Author: Dipanjan Banchur
Since he was in high school, Dipanjani was interested in the scholarship. This led him to obtain a master's degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a keen interest in reading and analyzing emerging trends in financial markets.
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