Netflix, Inc. (NFLX) has enjoyed a surge in subscriber growth, driven primarily by aggressive measures taken to restrict password-sharing and an increased interest in its ad-supported platform tier. The streaming behemoth amassed 8.76 million subscribers globally in the third quarter, significantly surpassing Wall Street's prediction of 5.49 million. In fact, the third quarter holds the record for the highest subscriber addition since the second quarter of 2020, when the company added 10.1 million subscribers owing to COVID-19 lockdown restrictions.
Currently, Netflix leads the over-the-top content platforms and anticipates that net additions in the ongoing quarter will mirror the trend observed in the third quarter. The company projects an 11% revenue increase in the fourth quarter, totaling approximately $8.69 billion.
Discussing profitability radar, Netflix has updated its full-year operating margin for 2023 to roughly 20%, this being at the upper limit of its previous projection range of 18% to 20%. The company also predicts operating margins for the full-year 2024 to be between 22% and 23%.
As the company owns chart-topping content like 'Squid Game' and engaging gaming titles, it is expected to see continued growth in the coming year.
"We think Netflix has reached the right formula with global content creation, balancing costs and increasing profitability, while its password sharing crackdown and eventually its ad-supported tier should further boost cash generation," Wedbush analysts said.
Over the past year, NFLX shares saw an impressive growth of 72.2%, and this upward trend is expected to sustain into the next year. For an investor, NFLX could make a strong candidate for portfolio addition. An in-depth analysis of its key financial metrics would provide further insight into the company's potential.
Analyzing Financial Performance of Netflix Inc. (NFLX)
Summary of the trailing-12-month Net Income of Netflix Inc. (NFLX):
- On December 31, 2020, NFLX reported Net Income of $2.76 billion.
- There was a continuous growth from December 2020 through December 2021, culminating in a Net Income of $5.12 billion at the end of 2021.
- The first quarter of 2022 observed a slight decline to $5.01 billion but recovered with an increase to $5.09 billion in the second quarter.
- A marginal decrease was noted again on September 30, 2022, but the bigger drop came in the last quarter of 2022 where it dropped to $4.49 billion.
- The start of 2023 witnessed a further decline, with the Net Income sitting at $4.20 billion by March 31, 2023.
- Although there was a slight increase observed in the consecutive quarters of 2023, the Net Income has not quite stabilized with the last value reported to be $4.53 billion on September 30, 2023.
To calculate the growth rate, we see an increase from $2.76 billion to $4.53 billion over the course of the data series. This is a 64.13% increase over the given time period. The overall profit trend for Netflix Inc. remains positive over this given period.
The trailing-12-month revenue of NFLX displayed a consistent increasing trend from December 2020 to September 2023. During this period, revenue figures increased from $24.96 billion in December 2020 to $32.74 billion in September 2023, marking an overall growth rate of approximately 31.2%. The data reveals several fluctuations but the general upward revenue trend persists over the examined period. Here are key observations:
- December 2020: $24.96 billion.
- March 2021: Revenue increased to $26.39 billion.
- June 2021: Further increase in Revenue marked at $27.59 billion.
- September 2021: Revenue rose to $28.63 billion.
- December 2021: End of the year saw revenue climb to $29.70 billion.
- March 2022: First quarter of 2022 observed a revenue of $30.40 billion.
- June 2022: Continued rise in Revenue reaching $31.03 billion.
- September 2022: Revenue jumps to $31.47 billion.
- December 2022: $31.62 billion of revenue at the end of the year.
- March 2023: First quarter saw a slight increase with revenue coming in at $31.91 billion.
- June 2023: Mid-year revenue report of $32.13 billion.
- September 2023: Last data point shows revenue peaking at $32.74 billion.
These observations clearly illustrate the steady rise in Netflix's Revenue over the timeframe, underlining the company's solid performance in terms of revenue generation.
Analyzing the data series, a discernible trend and fluctuations in the Gross Margin of Netflix Inc. (NFLX) can be outlined as follows:
- At the end of 2020 (December 31, 2020), Netflix Inc. reported a Gross Margin of 38.90%.
- There was significant growth in the first half of 2021, peaking at 43.20% on June 30, 2021.
- Over the next three quarters, through the end of 2021 and into 2022, there was consistent decline to 41.60%.
- By mid-2022 (June 30, 2022), Gross Margin fell to 40.60%, followed by a further decrease to 39.60% by the end of the third quarter (September 30).
- At the end of 2022 (December 31, 2022), there was a slight decrease to 39.40%.
- The data shows a smaller dip in the first quarter of 2023, to of 38.30%, followed by a smaller growth rate over the next two quarters.
- By the third quarter of 2023 (September 30), it rebounded slightly to 39.50%.
The Analyst Price Target for NFLX has experienced notable fluctuations from November 2021 to December 2023.
- As of November 30, 2021, the price target was $695.83.
- Over the following months, by May 31, 2022, it dramatically fell down to $300, which marks a decrease by almost 57%.
- Despite hovering around this low mark, with minor ups and downs, until October 31, 2022, a slight recovery to $251 is noticed.
- The value continued to increase slowly, reaching its year peak at $304.5 by January 31, 2023.
- From then on there was an ascending trend up until July 31, 2023, after which it reached a new peak at $404.17.
- The price target spiked at $497.86 in September 2023, reflecting a substantial So far, the highest reported monthly average was significant rising trend.
- But afterwards, it dropped slightly to $481.39 by October 31, 2023.
- By the end of the observed period, on December 28, 2023, the price target settled at $476.11.
Six-Month Review of Netflix Share Prices: July-Dec 2023 Highlighting Fluctuations and Growth
Looking at the given data, following are the observations for Netflix Inc. (NFLX) share prices from July to December 2023:
- Starting the review period on July 7, 2023, the share price of NFLX was valued at $439.31.
- It continued to rise, reaching $451.14 by July 21, it decreased to $423.42 by July 28.
- Despite minor fluctuations, the overall share price kept declining in August - capped off by a valuation of $414.96 on August 25.
- The share price rose again at the start of September, peaking at $444.65 by September 8.
- However, a significant drop was observed through late September and early October, with the lowest point being $370.14 on October 13.
- The share price then rebounded, beginning a growth period through late October and November, from $376.23 on October 20 to $476.45 by November 24.
- In December, despite experiencing a slight dip to $452.70, the price saw a upward trend closing at $490.39 on December 27.
To conclude, the trend revealed an overall increase in the share price of NFLX over the six months, despite some interim fluctuations. There was a significant growth from October through to December leading to this overall positive trend. Here is a chart of NFLX's price over the past 180 days.
Analyzing Netflix Inc.'s Positive Performance: Quality, Growth, and Sentiment Metrics
NFLX has an overall B rating, translating to a Buy in our POWR Ratings system. It is ranked #6 out of the 56 stocks in the Internet category.
The POWR Ratings for NFLX along three most noteworthy dimensions: Quality, Growth, and Sentiment show interesting patterns and trends.
Quality
The quality dimension has consistently registered the highest ratings across the examined period. From July 2023 to December 2023, Netflix Inc.'s quality ratings steadily increased from 91 in July 2023, remaining constant at 92 between August and October 2023, up to 94 in November and December 2023.
Growth
There is a clear upward trend in the growth dimension. Starting with a rating of 27 in July 2023, the growth rating rose gradually over the following months: 37 in August, 35 in September, and an impressive jump to 57 in October 2023. This rapid increase continued, reaching 90 in November and peaking at 91 in December 2023.
Sentiment
The sentiment ratings also depicted an upward trend, starting from 75 in July 2023 and then onto 81 and 83 in August and September respectively. Despite falling momentarily to 63 in October 2023, sentiment surged to 80 in November 2023 before dropping to 72 in December 2023.
In conclusion, these POWR Ratings suggest a positive outlook for Netflix Inc. as reflected by the growing sentiments, substantial growth momentum, and outstanding quality metrics.
How does Netflix Inc. (NFLX) Stack Up Against its Peers?
Other stocks in the Internet sector that may be worth considering are LINE Corporation (LN), Yelp Inc. (YELP), and Meta Platforms Inc. (META) -- they have better POWR Ratings.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
NFLX shares were trading at $491.07 per share on Thursday afternoon, down $0.72 (-0.15%). Year-to-date, NFLX has gained 66.53%, versus a 26.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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