The Netflix stock ($NFLX) rose by 10,4% last week to $722.79 and has recovered by 344% since its low in April 2022. Ahead of the quarterly earnings report on Thursday, investors are mostly optimistic, expecting confirmation of the company’s stable position. Nevertheless, it is advisable to be prepared for different scenarios. The high valuation could lead some investors to take substantial profits if the results disappoint. Key factors will be adjustments to the outlook, details on live events, and, of course, subscriber growth.
Netflix focuses on live events
Analysts are forecasting a 14.4% year-over-year increase in revenue for the third quarter, reaching $9.77 billion, along with a 37.0% surge in earnings per share to $5.11. Netflix is increasingly focusing on live events and has announced several deals this year. The spotlight is particularly on the fourth quarter, which will be exciting due to the broadcast of two NFL Christmas games on December 25. Last year, the three NFL Christmas games averaged 28.68 million viewers. Additionally, WWE announced in January 2024 that Raw will move to Netflix in January 2025, under a 10-year contract worth $5 billion. These developments could provide the next growth boost for Netflix. For many investors, the number of subscribers remains the key indicator. This figure is expected to have risen by about 4 million, reaching approximately 286 million subscribers.
Leverage ratio and gross margin
Investors should prepare to focus on other metrics in the future, as Netflix will no longer report subscriber numbers starting in 2025. It might be wise to closely monitor the debt ratio to assess the company’s risk. The gross margin offers insights into the profitability of content production and the overall efficiency of the business. Netflix is making significant investments to expand its offerings and meet customer needs, aiming to differentiate itself from competitors like Disney+ ($DIS) and Warner Bros. ($WBD). This year, the content budget is expected to reach $17 billion, with high costs estimated at around $75 million per NFL game for the deal.
Chart analysis: Two scenarios at a glance
The stock closed last week at a new record high of $722.79, based on weekly chart closing prices. The previous all-time high of $700 from 2021 served as a launchpad for the recent upward movement. The next target could be the 100% Fibonacci extension at $783, offering an upside potential of 8.4%. In the case of profit-taking, the $700 area provides initial support, as buyers have defended this level for three weeks. If this support fails to hold, the September low of $660 could be tested. Only a break below this level would signal a short-term trend reversal and increase the risk of larger losses.
Source: eToro, TradingView
Less price pressure and lower borrowing costs
Netflix stock is relatively highly valued with a forward P/E ratio of 31.36, but rising earnings expectations could make it more attractive. Therefore, the outlook on Thursday will be crucial. The U.S. is Netflix’s largest market, accounting for 41% of its revenue. The macroeconomic environment in the U.S. looks promising, with the economy on track for a soft landing, providing tailwinds. Inflation has declined for the sixth consecutive month in September, and the job market remains stronger than expected. Additionally, further interest rate cuts by the Fed are anticipated. These developments could give consumers more financial leeway to invest in streaming services, generating new growth impulses for Netflix. Lower price pressures and reduced borrowing costs also create ideal conditions for advancing new projects.
This communication is for information and education purposes only and should not be taken as investment advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without taking into account any particular recipient’s investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication.