Key points to remember
- EPS was $1.19 versus $1.37 expected by analysts.
- Global paid streaming subscriptions exceeded expectations.
- The turnover corresponds to expectations.
- Netflix said it was “very close” to having sustainably positive free cash flow and was considering buyouts.
What happened
After a major disappointment last quarter, Netflix reported higher-than-expected subscriber growth on January 19, 2021. Its stock rose more than 10% in aftermarket trading despite below-expected EPS and no corresponding only to income expectations. The big news from Netflix’s press release is that it says it’s “very close” to being sustainable. free movement of capital positive, and he feels he no longer needs to “raise external funding for our day-to-day operations”, a big development step for any business. He is also considering share buybacks.
(Below is the original Investopedia Earnings Snapshot published 1/18/21)
What to look for
Netflix Inc. (NFLX) thrived during the COVID-19 pandemic, benefiting from a surge in profits, revenue and share price. Demand for streaming services and internet services has soared and is expected to remain strong as consumers continue to shelter at home as the rise in deaths reaches new records due to the virus. Netflix’s total return over the past year is three times that of the overall market.
Investors will consider whether the company’s revenue and earnings can sustain even more robust growth when it reports results on January 19, 2021 for the fourth quarter of 2021.Analysts expect profits to rise at the slowest pace in six quarters despite strong revenue growth from the same period a year earlier.
Investors will also be looking at another key metric: Netflix’s paid global streaming subscriptions. Analysts believe paid global streaming subscriptions will continue to grow significantly year-over-year (YOY). This growth is estimated to be slightly faster than the same quarter a year ago, but is expected to be significantly slower than the later quarters in 2020.
Since the pandemic-induced stock market crash in early 2020, Netflix shares have significantly outperformed the broader market. While Netflix stock fell during the March 2020 market downturn, it fell less than the broader market and also rebounded much faster throughout 2020. The company’s stock provided a return total return of 46.9% over the past 12 months, well above the S&P 500 total return of 14.6% as of January 17, 2021.
Source: Trading View.
Netflix had at least four years of strong quarterly year-over-year revenue growth through Q4 2020. Quarterly revenue growth ranged from 22.2% to 40.4% for each quarter throughout this period. The consensus estimate for the fourth quarter of 2020 is 21.1% growth. While that still means robust growth, it would also mark the slowest pace of revenue growth in at least 16 quarters.
Netflix’s EPS performance has been less consistent. The last four years have been largely dominated by tremendous quarter-over-year EPS growth, including 566.8% in the first quarter of fiscal 2017 and 165.0% in the second quarter of fiscal 2020. There is also had 2 quarters of sharp decline in EPS, the fourth quarter of fiscal 2018 and the second quarter of fiscal 2019, followed by rebounds. Analysts expect Netflix to post a tepid 5.7% year-over-year EPS gain for the fourth quarter of fiscal 2020, a dramatic slowdown from recent quarters.
| Netflix Key Metrics | |||
|---|---|---|---|
| Estimate for the fourth quarter of 2020 (fiscal year) | Actual for Q4 2019 (AF) | Actual for Q4 2018 (AF) | |
| Earnings per share ($) | 1.37 | 1h30 | 0.30 |
| Revenue ($B) | 6.6 | 5.5 | 4.2 |
| Global Paid Streaming Memberships (M) | 201.2 | 167.1 | 139.3 |
Another key metric for Netflix, as mentioned above, is paid subscriptions to global streaming. The metric measures the number of global users who have signed up and paid for a subscription to receive streaming services. Netflix’s primary strategy is to grow its streaming subscription business globally, as it is the company’s primary source of revenue. Netflix’s strategy is becoming increasingly difficult in the face of increasing competition from new streaming services like those of the Walt Disney Co. (SAY) Disney+, Apple Inc. (AAPL) Apple TV+ and NBCUniversal’s Peacock.
Netflix has been growing its global paid subscriptions at a rapid pace throughout the pandemic and at least since the start of 2017. In early 2020, Netflix’s paid subscriptions surged as the virus began to spread in the United States and worldwide in the second quarter. During this period, Netflix’s paid subscriptions jumped 27.3%, much faster than the first quarter of fiscal 2020 and also much faster than the same quarter a year earlier. It was the fastest pace in at least 14 quarters. Analysts expect 20.4% growth in the fourth quarter of fiscal 2020. This would mark a slower rate of growth than previous quarters in quarterly 2020, but up slightly from the fourth quarter of the 2019 financial year.