Netflix Q4 earnings preview: slowest growth and lower margin

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Netflix will announce its quarterly earnings on 19 January, 2023 after market close. The streaming giant is anticipated to announce the slowest year-over-year growth rate in the company's history.

Source: Bloomberg

 

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Hebe Chen | Market Analyst, Melbourne | Publication date: Friday 13 January 2023 

Netflix’s earnings date?

Netflix will announce its quarterly earnings on 19 January 2023 after market close. The report will be for the fiscal quarter ending December 2022.

Netflix’s result preview: what to expect?

• Slowest revenue growth

Based on Netflix's estimation, the world's leading streaming provider did not expect its quarter four (Q4) earnings to be impressive. In Q4 of 2022, the company's revenue is forecast to be very close to the level of the Q4, 2021, around $7.8 billion, which would result in the slowest year-over-year growth rate in the company's history.

Investors are also advised to prepare for an ultra-low margin in the upcoming report, partly due to the pattern that the Q4 is typically a heavy spending season for content and marketing expenditure. Furthermore, the decades-high US dollar is another major headwind that weighs on the global entertainment powerhouse's margin, as most of the company's costs are in US dollars, while over 60% of revenue is now coming from overseas

Source: Netflix

Source: Netflix

 

• Low price strategy and new revenue structure

Netflix launched its lower-priced ad-supported plan in 12 countries in November as one of the most important strategic moves of 2022. For example, in the US, Netflix's subscription fee will start from $6.99 per month compared to the $9.99 for the existing plan.

The new and cheaper offer, although not anticipated to contribute materially in the fourth quarter, is poised to change Netflix's revenue structure fundamentally. The additional revenue streams including advertising and paid sharing will not only offset the risk of stalled user growth by introducing diverse offerings, but also increase the company's profitability. Netflix estimates the new ad-supported subscribers by the end of the year will be close to 200,000.

• Competition

Despite delivering a "stark reversal" by growing its paid memberships by 9.4% year over year, the competition in the streaming industry that Netflix confronts is not going to get any easier. Disney, without question, is growing at a much faster pace than Netflix now and with more subscribers now. Moreover, in light of the wide-spreading cost-of-living crisis, the competition to win viewers' time and wallet will become more and more challenging for Netflix.

Source: Netflix and Disney report

Netflix share price

Since the second half of 2022, Netflix's stock price has been following an ascending trajectory, rising from its multi-year bottom to currently trade around $325. If this momentum stays valid after Q4’s earnings, the price will have great potential to move towards the 38.2% Fibonacci retracement level, sits around $368. On the flip side, a pullback from its current level could bring the psychological level at $300 in prospect. Further breaking through the moving tunnel would indicate a reversal of the bullish view.

Source: IG

Netflix Earnings Summary

Netflix’s stock price has surged nearly 90% since the streaming giant reported its third-quarter earnings that exceeded the analysts’ expectations in a wide range. But even so, it might be too optimistic to expect that the woes are over. Either the tightened economic environment or the highly competitive industry setup will remain the major hurdle for the streaming king to overcome.