Netflix: Q3 earnings preview

Next week, Netflix will announce its earnings report for Q3 2024 on Thursday 17th October. The streaming giant tends to be the first of the FAANGS to report earnings each quarter. The market is expecting quarterly revenue of $9.77bn, and net income or profits of $2.23bn. Earnings per share is expected to come in a $5.16, significantly higher than the $4.88 for Q2.

Analysts have recently upgraded their expectations for Netflix’s EPS estimates and revenue estimates have also been upgraded a touch. However, net income has been revised down slightly, by 0.11%.

Another strong quarter for Netflix

Analysts are expecting a strong set of results for Netflix. If it can meet analyst expectations, then EPS of $5.16 would be a growth rate of 38.4% YoY. Revenues are forecast to rise 14.4% YoY, with net income expected to be more than 33% higher on an annual basis. The market is expecting Netflix’s growth rate to be stronger than its peers in the streaming sector, and if Netflix reports a strong quarter of results, it could solidify its position as the top global streaming service and pulling further away from the likes of Disney + and Paramount.

Netflix gives with one hand, but could take away with another

From a content perspective, Netflix has had another stellar year, with the new season of Bridgerton filling the gap left behind by the end of The Crown in 2023. Baby Reindeer was a global smash in 2024, and the new comedy series, Nobody Wants This, has performed well with global audiences in recent weeks. There is also a strong content schedule for 2025. Netflix will show the Christmas schedule of the National Football League for the first time, and it will start showing wrestling on WWE Raw from 2025. Season 2 of Squid Game will be released on December 26, and the new season of Stranger Things is out next year. These major new content releases could give Netflix the opportunity to raise prices from next year.

Compared to its peers in the streaming sector, Netflix has not raised prices in recent years. Also, after a spate of changes at Netflix, for example, a crackdown on password sharing, introducing a cheaper tier of membership with adverts, and eliminating the most basic level of membership in many markets, the company needs to come up with something new to boost revenue in the coming quarters.

With Netflix investing heavily in new content and features, this could be a good time to raise prices. Currently a standard plan without adverts is just over $15 per month for US users, this could be raised to $17 per month with a 12% increase. We doubt that Netflix could justify raising prices too much higher than this level at this stage.

Why Netflix can get away with a price increase

A price increase may not prove too controversial, for example, Netflix saw its subscriber base grow when it cracked down on password sharing. Added to that, a Netflix subscription is considered a necessity for some, and an affordable luxury for others, that saves on the cost of a night out or a trip to the cinema. Thus, we believe that price increases could be absorbed well by a global audience hooked on Netflix shows.

The company may choose to announce any potential price increases at a later date; however, we think that if price hikes are not formally announced on the 17th, then they may tout the possibility of the increase on next week’s call.

Subscriber numbers to be scrapped in 2025

The subscriber numbers are also worth noting, this is the penultimate report where subscriber figures are included. Netflix will scrap reporting on subscriber numbers from 2025. Subscriber growth this year has been strong, in Q2 subscriber figures rose by 8.05 million, and Netflix now has 277.65mn subscribers worldwide. The company expects there to be more upside to subscriber numbers from the crackdown on password sharing, but we will be watching to see if there are signs that this boost to revenue is starting to fade. However, the subscriber metric is essentially pointless at this stage as it will be scrapped from next year, so the focus could shift to revenue growth.

Record high stock price ahead of earnings report

The Netflix stock price is at an interesting junction as we lead up to this earnings report. The share price reached a record high of $733.40 on 11th October, and it has been hovering around these highs ever since. The stock price has risen by more than 50% YTD, 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.

What analysts think about Netflix

Analysts are generally bullish on the stock, and the majority of analysts have a ‘buy’ recommendation for Netflix, although the stock price has already outperformed the average target price of $721.

Thus, there is a risk that the market could be disappointed if Netflix cannot deliver the goods for last quarter. Overall, we think that the company has a high chance of meeting expectations for Q3 earnings, but a negative shock could weigh heavily on the share price.