What Investors Need to Know Ahead of Netflix Q3 Earnings

● Netflix is expected to post quarterly earnings of $5.06 per share in the third quarter of 2024, which represents a year-over-year change of 36.44%.

● Revenues are expected to be $9.76 billion, up 14.32% from the year-ago quarter.

The Netflix stock price is at an interesting junction ahead of its Q3 earnings report. The share price reached a record high of $736 on 11th October, with the stock up 50% year-to-date, and the price-to-earnings ratio is a fairly chunky 46.41. However, the 12-month forward P/E ratio is 34.9. This is a sign that the market is expecting strong earnings growth in the coming quarters, rather than a decline in the stock price.

Subscriber growth this year has been strong, in Q2 subscriber figures rose by 8.05 million. Analysts expect Netflix to report just under 286 million active subscribers at the third quarter, up about 4 million from last quarter and over 30 million more than last year, according to Visible Alpha. Netflix has said it will stop reporting subscriber data starting in 2025, and focus instead on financial metrics.

The company expects there to be more upside to subscriber numbers from the crackdown on password sharing, but the market will be watching to see if there are signs that this boost to revenue is starting to fade.

Additionally, Netflix has an important fourth quarter, with KeyBanc analysts recently noting that the streamer's first NFL games, which will be broadcast on Christmas Day, could be a catalyst for subscriber growth. The analysts, who raised their price target to $760 from $735, said nearly a quarter of people they surveyed who aren't Netflix subscribers said the games would make them consider signing up.

Moreover, Netflix is also set to become the official broadcaster of TKO Group's (TKO) WWE professional wrestling events starting next year.

Oppenheimer raised the firm's price target on Netflix to $775 from $725 and keeps an Outperform rating on the shares. With shares up 13% since Q2 results on positive 3P subscriber data, Netflix will likely need to post strong results and guidance, plus announce a pricing increase, the firm says.

Last October, Netflix announced an increase to the Premium tier in the U.S., U.K. and France. Oppenheimer now expects a Premium pricing increase for other regions, and more importantly an 8%-15% increase to the Standard plan. Netflix has not increased Standard price since January 2022, then a 53% premium to peers vs. today's 4%. Meanwhile, strong Q3 viewing and Q4 content slate, including NFL, should further reduce churn risk, the firm adds.

Morgan Stanley analyst Benjamin Swinburne raised the firm's price target on Netflix to $820 from $780 and keeps an Overweight rating on the shares. The firm continues to forecast 4-4.5 million net adds for Q3, which it says is "likely conservative," and 8- 9 million for Q4.

Currently, Netflix's implied post earnings move is ±7.9%, indicating that the options market is betting on a single-day price movement of 7.9% after earnings. In comparison, Netflix's average actual move after earnings over the past four quarters has been ±9.3%, suggesting that the current options value for the stock is undervalued.

Source: Market Chameleon

From the perspective of options volatility skew, market sentiment is slightly bearish on Netflix.

Source: Investopedia, Yahoo Finance, The Fly