With a $289.74 billion market capitalization, Netflix, Inc. (NFLX) is one of the world’s leading entertainment services companies, offering TV series, documentaries, feature films, and games across various genres and languages.
NFLX dominates as the most subscribed video streaming service, with total paid memberships reaching $269.60 million worldwide in the first quarter, a nearly 16% growth year-over-year. It reported first-quarter revenue of $9.37 billion, surpassing analysts’ expectations of $9.28 billion. The company’s EPS came in at $5.28, compared to the consensus estimate of $4.54.
Moreover, Netflix reported that its ad memberships grew by 65% quarter-on-quarter with over 40% of all signups in its ads markets coming from ads plan. The company also got into new partnerships with Kantar and Lucid for brand awareness and recall, and Nielsen Catalina Solutions for sales lift.
On the last earnings call, Netflix’s co-CEO, President, and Director, Gregory K. Peters, discussed the company’s decision to stop sharing quarterly paid subscriber numbers starting in 2025. “We've evolved and we're going to continue to evolve, developing our revenue model and adding things like advertising and our extra member feature, things that aren't directly connected to number of members,” he said.
“We've also evolved our pricing and plans with multiple tiers, different price points across different countries. I think those price points are going to become increasingly different. So each incremental member has a different business impact,” he added.
For the second quarter of fiscal 2024, the video streaming giant expects total revenue of $9.5 billion, representing growth of 16% year-over-year. Also, NFLX’s non-GAAP operating income is expected to be $2.5 billion and income per share to be $4.68 for the quarter.
NFLX’s stock has soared 36.9% over the past six months and 61.7% over the past year to close the last trading session at $672.41. Also, the stock is trading above its 50-day and 200-day moving averages of $621.63 and $527.87, respectively, indicating an uptrend.
Let’s look at factors that could influence NFLX’s performance in the upcoming months:
Solid Financials
NFLX’s revenues rose 14.8% from the year-ago value to $9.37 billion for the first quarter that ended March 31, 2024. Its operating income stood at $2.63 billion, up 53.8% year-over-year. For the same quarter, its net income and earnings per share increased 77.9% and 83.3% year-over-year to $2.33 billion and $5.28, respectively.
Furthermore, the company’s cash inflows from operating activities were $2.21 billion, an increase of 33.1% quarter-over-quarter. Netflix’s free cash flow rose 35.2% from the previous quarter to $2.14 billion.
Impressive Historical Growth
Over the past three years, NFLX’s revenue has grown at a CAGR of 9.8%. Its levered free cash flow and total assets have improved at CAGRs of 13% and 6.7%, respectively, over the same timeframe. Additionally, the company’s EBITDA has increased at a CAGR of 12.9% over the same period.
Moreover, the company’s net income and EPS have grown at respective CAGRs of 19.6% and 20.4% over the same period.
Optimistic Analyst Expectations
Analysts expect NFLX’s revenue to increase 16.4% year-over-year to $9.53 billion for the second quarter ending June 2024. The consensus earnings per share estimate of $4.77 for the ongoing quarter indicates an improvement of 44.9% year-over-year. Also, the company has surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
Additionally, the company’s revenue and EPS for this fiscal year (ending December 2024) are expected to grow 14.6% and 52.4% year-over-year to $38.65 billion and $18.34, respectively. For the fiscal year 2025, Street expects its revenue and EPS to increase 11.9% and 20.7% from the prior year to $43.25 billion and $22.13, respectively.
Accelerating Profitability
NFLX’s trailing-12-month EBIT margin and net income margin of 22.54% and 18.42% are significantly higher than the industry averages of 8.88% and 3.10%, respectively. Similarly, its trailing-12-month levered FCF margin of 55.88% is 594.7% higher than the industry average of 6.04%.
Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 29.80%, 12.84%, and 13.18% favorably compared to the industry averages of 3.38%, 3.60%, and 1.26%, respectively.
POWR Ratings Reflect Promise
NFLX’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NFLX has an A grade for Quality, consistent with its higher-than-industry profitability. Also, the stock has a B for Sentiment, in sync with its solid financial performance and favorable analyst estimates.
NFLX is ranked #18 among the 51 stocks in the B-rated Internet industry.
Beyond what I have stated above, we have also given NFLX grades for Growth, Stability, Momentum, and Value. Get access to all NFLX ratings here.
Bottom Line
NFLX’s revenue and EPS surpassed fiscal 2024 first-quarter analyst expectations. Furthermore, analysts appear bullish about Netflix’s prospects, driven by robust subscriber growth, a strong content portfolio, including original series, movies, and documentaries, revenue diversification with ad-supported subscription plans, strategic partnerships, and technological investments.
According to Grand View Research, the global video streaming market is expected to reach $416.84 billion by 2030, growing at a CAGR of 21.5% from 2024 to 2030. The massive market growth should bode well for NFLX.
Given NFLX’s robust financials, growing profitability, and a bright long-term growth outlook, it could be wise to invest in this stock.
How Does Netflix Inc. (NFLX) Stack Up Against Its Peers?
While NFLX has an overall POWR Rating of B, investors could also check out these other stocks within the Internet industry with A (Strong Buy) or B (Buy) ratings: Yelp Inc. (YELP), Dingdong (Cayman) Ltd (DDL), and eBay Inc. (EBAY).
For exploring more A and B-rated internet stocks, click here.
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NFLX shares fell $1.81 (-0.27%) in premarket trading Wednesday. Year-to-date, NFLX has gained 37.73%, versus a 15.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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