US earnings forecasts: Netflix Q3 results preview

When is Netflix's earnings date?

Netflix Inc., the NASDAQ-listed, world-leading internet television network, will report its third-quarter earnings for 2023 (Q3 2023) on Thursday, 19 October 2023 at 7:00 am AEDT after the market closes.

Netflix earnings preview: what does 'The Street' expect?

A consensus of estimates from Refinitiv indicates the following expectations for the Q3 2023 Netflix results:

• Revenue: $8.535 billion (+7.69% YoY)
• EPS: $3.49 (+12.71% YoY)

What should you know?

• Netflix's Q3 2023 earnings are expected to show a year-on-year revenue increase of 7.69% and an EPS increase of 12.71%
• Netflix has expressed confidence in its financial outlook due to the successful implementation of paid sharing, which is expected to drive accelerated revenue growth in the second half of 2023
• Revenue growth is anticipated to be driven by an increase in average paid memberships, while the average revenue per user (ARM) is expected to be flat or slightly down year-on-year
• Netflix anticipates a Q3 operating income of $1.9 billion, up from $1.5 billion in the same period last year, and an operating margin of 22%, an increase from 19% in Q3 2022
• Although public sentiment is considered bullish, there has been some net selling of the stock by hedge funds and company insiders over the last quarter.

Financial objectives and key metrics

Netflix recently provided a snapshot of its financial outlook for Q3 2023. As a dominant force in the entertainment sector, key financial indicators for the company include revenue growth and operating margin, which serve as metrics for profitability. The firm aims to boost revenue growth, widen operating margins, and generate an increasing positive free cash flow. Market performance will likely be gauged against expectations for these metrics, as well as subscriber growth.

Paid sharing and revenue growth

The company's confidence in its financial prospects has risen due to the effective roll-out of paid sharing. This feature is expected to contribute to accelerated revenue growth in H2 2023 as it is expanded across most remaining countries, and as the company continues to see stable growth in its ad-supported plans.

Q3 2023 financial forecast

Q3 forecasts suggest an expected revenue of $8.5 billion, marking a YoY increase of 7% on both a reported and currency-neutral basis. This represents a minor acceleration from the Q2 2023 currency-neutral revenue growth rate of 6%. The increase in Q3 revenue is anticipated to stem from growth in average paid memberships.

Currency-neutral average revenue per user (ARM)

Nevertheless, the currency-neutral ARM (average revenue per user) is projected to remain flat or decline slightly YoY. This is attributed to the company having rolled over price increases from 2022 and having abstained from price hikes in its largest revenue markets since H1 2022. Revenues from advertising and additional member features have not yet materially compensated for these factors.

Net additions and future projections

Regarding net additions, Q3 2023 paid net adds are forecast to be on par with Q2 2023 figures. Revenue growth is expected to pick up more significantly in Q4 2023, driven by further monetisation of account sharing between households and steady growth in advertising revenue.

Profitability and operating margins

In terms of profitability, Netflix anticipates a Q3 operating income of $1.9 billion, up from $1.5 billion in Q3 2022, and an operating margin of 22%, an increase from 19% in the same quarter last year. The full-year 2023 operating margin target stands at 18%-20%, based on FX rates as of 1 January 2023, marking an improvement from 17.8% in FY 2022.

Netflix is committed to fuelling growth and elevating profitability through strategies like paid sharing and advertising.

How to trade the Netflix Q3 2023 results

IG client sentiment for Netflix

IG's TipRanks SmartScore (available on the IG platform) suggests that Netflix is a 'Moderate Buy' with a long-term price target of $470.43 a share, as of 11 October 2023. Public sentiment is considered bullish; however, there has been some net selling of the stock by hedge funds and company insiders over the last quarter.

Eighty-six percent of IG clients with open positions on Netflix (as of 11 October 2023) expect the share price to rise in the near term, while 14% of IG clients with open positions on the company expect the price to fall.

Netflix technical analysis

The share price of Netflix is currently testing a confluence of trend line, horizontal, and 200-day simple moving average (MA) support, represented by the blue line. Provided the price remains above this confluence of levels, the longer-term trend is considered upward.

Trend followers may prefer to see some bullish momentum in alignment with the longer-term uptrend before seeking a long entry. A break or close above the 389.10 level, should it occur, might provide this momentum confirmation. In this scenario, 410.15 becomes the initial upside resistance target, while a close below the 366.15 level could serve as a stop-loss indicator for the setup, should it materialise.

Netflix daily chart