Earnings Glory and Quiet Storms: Netflix's Path Forward
Netflix has experienced a remarkable surge in subscriber growth attributed to its proactive measures to curtail password sharing and the introduction of a new ad-supported subscription tier. In the third quarter, the global streaming juggernaut welcomed an impressive 8.76 million new subscribers, significantly outpacing Wall Street's conservative estimate of 5.49 million. This milestone represents the most substantial quarterly increase since the second quarter of 2020, a period marked by a surge in subscriptions due to the COVID-19 pandemic.
In terms of financial performance, the results for this quarter are as follows:
1- Earnings: Netflix achieved earnings of $3.73 per share, surpassing the projected figure of $3.49 per share (as per LSEG, formerly known as Refinitiv).
2- Revenue: The company generated revenue of $8.54 billion, aligning precisely with the expected figure of $8.54 billion (according to LSEG).
3- Total memberships: Netflix reported a total of 247.15 million memberships, exceeding the anticipated 243.88 million (according to Street Account).
Nonetheless, it is important to consider that there are underlying aspects that may not be immediately apparent to investors, but could impact the company's stock price in the future.
Firstly, Netflix's trailing twelve-month Price to Earnings (P/E) ratio currently stands at 38.19, which exceeds the historical average of approximately 15. This valuation places Netflix in the category of overvalued stocks, as investors are paying a premium compared to its earnings. Netflix's trailing twelve-month earnings per share (EPS) of 9.39 may not fully justify its current market valuation. It is important to note that trailing P/E ratios may not account for a company's projected growth rate, which can lead to elevated P/E ratios driven by expectations of substantial future growth, even if current earnings appear low.
Further, Netflix boasts a 12-month forward Price to Earnings Growth (PEG) ratio of 1.36. This suggests that the market is currently valuing Netflix above its expected growth potential, given that a PEG ratio above the fair market value of 1 indicates overvaluation. The PEG ratio of 9.39 is calculated by dividing its forward price to earnings ratio by its growth rate. PEG ratios are a widely used valuation metric, as they consider various fundamental metrics and prioritize the firm's future rather than its past performance. The combination of these valuation metrics paints a somewhat unfavorable picture for Netflix at its current market price, due to an overvalued PEG ratio despite robust growth.
Furthermore, Netflix recently implemented price hikes for its services, with the basic subscription rate in the UK rising by £1 to £7.99 and the premium option increasing by £2 to £17.99. Similarly, premium plans in the US and France experienced price increases of $3 and €2, respectively. While these adjustments are indicative of the company's growing confidence, they come at a time when Netflix is confronting concerns about its ability to continually attract new members amidst mounting competition, escalating prices, and disruptions caused by a Hollywood strike.
It is worth noting that in a landscape of intensifying competition and Netflix's imposition of increased constraints on its subscribers, such as price hikes and sharing limitations, there is the potential for adverse implications on future subscriber growth.
From a technical standpoint, Netflix's price chart illustrates the completion of five upward waves within an ascending channel, with a subsequent breakage and retesting of the channel. This retest has generated a considerable price gap that suggests a likelihood of retracement to fill the gap. Should this scenario unfold as anticipated, there is a possibility that prices may revert to prior lows, particularly around the 61.8% Fibonacci Retracement level at approximately $286.00. A breach of this level could precipitate a further decline, potentially revisiting the initial channel starting point at $170.00.
I encourage you to delve into my other analyses, as they provide valuable insights into the broader economic landscape. By combining these analyses, you'll gain a clearer understanding of what's on the horizon.
Your commitment to assessing multiple viewpoints is a commendable approach to informed decision-making in the complex world of financial markets.
Goodluck!
In terms of financial performance, the results for this quarter are as follows:
1- Earnings: Netflix achieved earnings of $3.73 per share, surpassing the projected figure of $3.49 per share (as per LSEG, formerly known as Refinitiv).
2- Revenue: The company generated revenue of $8.54 billion, aligning precisely with the expected figure of $8.54 billion (according to LSEG).
3- Total memberships: Netflix reported a total of 247.15 million memberships, exceeding the anticipated 243.88 million (according to Street Account).
Nonetheless, it is important to consider that there are underlying aspects that may not be immediately apparent to investors, but could impact the company's stock price in the future.
Firstly, Netflix's trailing twelve-month Price to Earnings (P/E) ratio currently stands at 38.19, which exceeds the historical average of approximately 15. This valuation places Netflix in the category of overvalued stocks, as investors are paying a premium compared to its earnings. Netflix's trailing twelve-month earnings per share (EPS) of 9.39 may not fully justify its current market valuation. It is important to note that trailing P/E ratios may not account for a company's projected growth rate, which can lead to elevated P/E ratios driven by expectations of substantial future growth, even if current earnings appear low.
Further, Netflix boasts a 12-month forward Price to Earnings Growth (PEG) ratio of 1.36. This suggests that the market is currently valuing Netflix above its expected growth potential, given that a PEG ratio above the fair market value of 1 indicates overvaluation. The PEG ratio of 9.39 is calculated by dividing its forward price to earnings ratio by its growth rate. PEG ratios are a widely used valuation metric, as they consider various fundamental metrics and prioritize the firm's future rather than its past performance. The combination of these valuation metrics paints a somewhat unfavorable picture for Netflix at its current market price, due to an overvalued PEG ratio despite robust growth.
Furthermore, Netflix recently implemented price hikes for its services, with the basic subscription rate in the UK rising by £1 to £7.99 and the premium option increasing by £2 to £17.99. Similarly, premium plans in the US and France experienced price increases of $3 and €2, respectively. While these adjustments are indicative of the company's growing confidence, they come at a time when Netflix is confronting concerns about its ability to continually attract new members amidst mounting competition, escalating prices, and disruptions caused by a Hollywood strike.
It is worth noting that in a landscape of intensifying competition and Netflix's imposition of increased constraints on its subscribers, such as price hikes and sharing limitations, there is the potential for adverse implications on future subscriber growth.
From a technical standpoint, Netflix's price chart illustrates the completion of five upward waves within an ascending channel, with a subsequent breakage and retesting of the channel. This retest has generated a considerable price gap that suggests a likelihood of retracement to fill the gap. Should this scenario unfold as anticipated, there is a possibility that prices may revert to prior lows, particularly around the 61.8% Fibonacci Retracement level at approximately $286.00. A breach of this level could precipitate a further decline, potentially revisiting the initial channel starting point at $170.00.
I encourage you to delve into my other analyses, as they provide valuable insights into the broader economic landscape. By combining these analyses, you'll gain a clearer understanding of what's on the horizon.
Your commitment to assessing multiple viewpoints is a commendable approach to informed decision-making in the complex world of financial markets.
Goodluck!
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