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Streaming giant Netflix (NFLX) will report its fourth quarter 2024 financials on Tuesday, Jan. 21. Heading into the print, NFLX stock has witnessed a slight pullback and is down about 10% over the past month. This decline reflects the selling pressure in the broader market due to macroeconomic uncertainty.
Despite the recent pullback, Netflix’s stock performance over the past year has been remarkable. It has surged approximately 69%, reflecting growth in global paid memberships and higher average revenue per membership (ARM). This upward trajectory suggests that Netflix’s underlying business fundamentals remain solid, and these factors will likely drive its Q4 performance.
Netflix’s content slate will drive subscriber growth in Q4. Major releases like the Jake Paul-Mike Tyson fight, NFL games, and the highly anticipated second season of Squid Game are expected to have bolstered its subscriber base further. This focus on high-quality, diverse programming positions Netflix as a leader in the competitive streaming market.
However, it’s important to note that much of this optimism has already been baked into Netflix’s current stock price. As a result, the stock’s future trajectory may hinge on management’s outlook and guidance for sustained growth in the quarters ahead. Let’s take a look at analysts’ expectations for Q4.
Netflix: Q4 Expectations
Wall Street expects the streaming giant to report earnings of $4.20 per share, a 99% increase from the $2.11 reported during the same quarter last year. Impressively, Netflix has exceeded earnings expectations for the past three quarters, including a 6.09% beat in its most recent report.
On the revenue front, Netflix’s management is projecting growth of 15% for Q4 2024. This optimism stems from seasonal trends and a compelling content lineup driving higher paid net additions. The company also anticipates a significant improvement in its operating margin, expecting it to rise to 22% for the quarter, a 5% increase year-over-year.
For the full year, Netflix is on track to achieve the high end of its revenue growth target of 14%-15%. Its operating margin is expected to reach 27%, up 6% compared to 2023.
While these figures point to strong performance, there are challenges ahead. The strengthening of the U.S. dollar could weigh on Netflix’s revenue growth, as the company generates a significant income from international markets.
The Road Ahead for Netflix Stock
Netflix’s ability to increase its subscriber base, introduce price increases with high retention, and grow its advertising business positions it well to deliver solid growth in 2025. The company aims to grow its revenue by 11%-13% over its 2024 forecast of $38.9 billion. Additionally, Netflix targets a 100-basis-point improvement in its operating margin, reflecting its focus on enhancing profitability.
Netflix’s investments in content will continue to drive engagement and user retention. Moreover, Netflix is diversifying its offerings, leveraging its extensive content library to explore new avenues like gaming and live events. This diversification, combined with flexible pricing options, including an ad-supported tier, ensures that Netflix appeals to a wide audience while allowing it to incrementally raise prices.
The company’s advertising business is another exciting growth area. In Q3, over 50% of new sign-ups opted for the ad-supported plan. Engagement metrics for this plan are also encouraging, with viewing hours on par with the standard plan in the 12 markets where it is available. As Netflix continues to refine its ad offerings, advertising revenue is poised to significantly contribute to its overall financial performance.
Challenges and Analyst Sentiment
Despite its growth trajectory, Netflix faces potential headwinds. Subscription growth could decelerate as the impact of paid sharing enforcement levels off. Additionally, rising content costs may pressure margins, particularly as competition in the streaming space remains fierce.
Wall Street analysts are cautiously optimistic about Netflix’s prospects, maintaining a “Moderate Buy” consensus rating on the stock. While challenges remain, Netflix’s content slate, innovative pricing strategies, and expanding advertising business position it well for continued success in the long run.
