Netflix Q3 2021 pre-earnings: what you need to know

By Duncan Ferris

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Streaming service Netflix (NASDAQ: NFLX) will report its third quarter earnings on 19 October - here's what you need to know

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Streaming service Netflix (NASDAQ: NFLX) will report its third quarter earnings on 19 October.

The company came in short of expectations in the second quarter. This was attributed to audiences being relieved of pandemic restrictions and as a result, decreasing demand for streaming entertainment in the home.

However, there seems to be optimism ahead of the third quarter results. Netflix is riding high on the back of the success of Squid Game, an immensely popular Korean series which has attracted record numbers of viewers worldwide.

Share price overview

Netflix’s share price has climbed by 520.6% over the last five years and by 20.5% over the year to date. Additionally, the price has risen by 16.5% over the last three months.

According to Koyfin data, the 12-month average share price target is $608. The majority of brokers have Strong Buy or Buy recommendations for Netflix stock.

As of 14 October, Netflix’s financial metrics looked like this:

  • Share Price: $629.76

  • Market Cap: $278.7bn

  • Trailing 12-month (TTM) Revenue: $26.7bn

  • TTM Cash and Short Term Investments: $7.8bn

  • Total Assets: $41.0bn

  • Debt: $17.9bn

  • Total Equity: $11.1bn

  • TTM EPS: 9.65

  • TTM P/E Ratio: 65.25

Predictions

Analysts expect the streaming company to report third quarter revenue of $7.5bn and EPS of $2.56. These would represent increases of 16.5% and 47.1% compared to Netflix’s results from 12 months prior.

There is also positivity surrounding Netflix’s guidance of netting an additional 3.5 million subscribers in the quarter. This is far ahead of the 2.2 million it added in the same period last year, with analysts noting that the success and international appeal of Squid Game was likely to give the company a boost in memberships.

Looking to the long-term, Netflix CFO, Spencer Neumann, noted on the last earnings call that this level of growth would keep the company right on track. He explained:

“We’ll have added 54 million new members over that 2-year period or on average, 27 million a year, which is right in line with our past few years of growth in 2018 and 2019”.

Shareholder risks

While the streaming market is growing, Netflix faces risk in the form of competition. The company has been the top dog in the sector for a while, but Disney+, Amazon Prime Video, HBO Max and Apple TV+ are continually investing more in their own programming.

If shows like Amazon’s Lord of the Rings series or HBO’s Game of Thrones prequel House of the Dragon are successful, they could draw consumers away from Netflix. The streaming service also faces risks in the form of the possibility of increased regulation of internet-based services and price risk.

Finally, another wave of the pandemic could delay production of the platform’s original content. While the effect of this was more than mitigated by increased demand for its services in previous waves, consumers might opt to subscribe to one of Netflix’s competitors should pandemic restrictions tighten.

A good investment?

Netflix appears to have weathered the gradual return to normal life well. The boost in new subscribers that the streaming service enjoyed in the early days of the pandemic was not sustainable, but the platform’s original programming seems to have kept audiences engaged and committed to the service.

Additionally, Netflix believes there is scope for further growth. In its second quarter earnings report the company noted that linear television still dominated US TV screen time, with on-demand streaming services accounting for just 27% of viewing time. Considering this, along with the fact that the company remains less mature in other geographies, Netflix sees adequate scope for continued growth.

It also wants to expand its offering beyond the creation of original programming. The company has ambitions to build upon the interactivity of its services and produce games. It has already dipped its toes into the water with projects such as Black Mirror: Bandersnatch, which was a cross between a television show and a ‘choose your own adventure’ story. Netflix’s push into this content category could engage fresh audiences.

Netflix appears to have a strong hold on its position as top dog in the streaming service arena. It also has a plan for growth and new ideas in the pipeline to broaden its appeal, making the stock look like a smart long-term investment. However, the company faces very real competitor risk and will need to stay on its toes to keep subscribers engaged.

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Topics:
Quarterly Earnings
Movies and Entertainment
Industries:
Communication Services
Companies:
Netflix

Author: Duncan Ferris

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.