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Netflix (NASDAQ: $NFLX) Stock Soars on Strong Earnings Report – Some Analysts Express Skepticism

Netflix, Inc. (NASDAQ: $NFLX)

Netflix (NASDAQ: $NFLX) is a global subscription-based streaming service that offers users a wide array of TV shows, movies, documentaries, anime, and more via internet-connected devices. The streaming giant released its Q4 earnings report on Tuesday, January 23, 2024, after markets closed, with the market reacting positively to the results.

Netflix Earnings Report

The company reported a revenue of $8.8 billion for Q423, marking a 12.5% increase from last year. Its net quarterly income was $938 million, a massive increase from the $55 million reported in Q422. Netflix’s diluted EPS for Q4 was $2.11, representing a significant increase from the $0.12 reported in Q422.

For the full year, Netflix had a net income of $5.41 billion, compared to $4.5 billion reported in FY22. Its full-year diluted EPS was $12.03 compared to $9.95 reported in FY22.

For the quarter, operating income stood at $1.5 billion, a massive increase from the $550 million operating income in Q422. Its operating margin for the quarter stood at 16.9%, an enormous increase from the 7% operating margin reported in Q422.

The reported operating income and operating margin for Q4 were higher than Netflix’s forecast of $1.2 billion and 13%, respectively. The better-than-forecast performance was attributed to a revenue increase in the quarter and lower-than-expected spending.

The full-year operating income was $7 billion, representing a 23% increase Y/Y. The full-year operating margin was 21%, higher than the 18% to 20% forecasted by the company at the start of 2023.

Netflix also reported a huge increase in global streaming paid memberships, which stood at 260.28 million for the quarter, compared to 230.75 million reported in Q422. That marked a 12.8% Y/Y increase. Netflix reported that its global paid net additions for the quarter were 13.12 million, a historic Q4 high, significantly greater than the 7.66 million net additions reported in Q422.

In terms of cash flow, Netflix is also doing quite well. The company reported having $1.66 billion in net cash from operations. Additionally, it said that it had $1.58 billion in free cash flow as of the end of Q423.

For the full year, net cash from operation was $7.3 billion compared to the $2 billion reported in 2022. Free cash flow for the entire year stood at $6.9 billion, a substantial increase from the $1.6 billion reported in the full year 2022.

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Forecast for 2024

Netflix stated that they’re coming into 2024 with significant momentum. They forecast double-digit growth in revenue for the whole of 2024. Rising membership numbers will power this growth. Additionally, Netflix plans to continue growing its ad business in 2024.  

For Q124, Netflix is forecasting revenue of $9.24 billion, representing a Y/Y increase of 13.2%. Their net income forecast for Q124 is $1.98 billion and a diluted EPS of $4.49. It forecasts an operating income of $2.42 billion for the quarter and a 26.2% operating margin. For the full year, Netflix forecasts an operating margin of 24%.

The company projects a slowdown in sequential paid net additions, a seasonal trend seen in previous years. However, they are projecting a higher number than the paid net additions of 1.75 million reported in Q123.

Netflix Stock Soars after Positive Q4 Numbers

During early morning trading on Wednesday, January 24, 2024, Netflix stock climbed over 14% to nearly $560 per share, before closing trading 10.70% higher at $544.87. The early morning highs were the highest for NFLX stock since January 2022. The market was reacting to Netflix’s largest quarterly net additions since the start of 2020. During early morning trading on January 25, 2024, NFLX stock was up 1.55% as of 10:45AM in New York at $553.30 per share.

Netflix (NASDAQ: NFLX)

Some Analysts Express Skepticism

According to some analysts, the NFLX stock rally on January 24 was unwarranted. They felt that investors should focus on financial performance and not subscriber numbers. Skeptics likened the market’s reaction to the pandemic trend where Wall Street reacted to entertainment stocks and their streaming service’s numbers at the expense of financial performance.  

Other analysts noted that Netflix’s crackdown on password sharing drove the recent rise in numbers. They questioned how much more the streaming giant could squeeze from that effort. The skeptics also question whether Netflix can maintain the momentum that has seen the stock rally nearly 200% in the past 18 months.

NFLX Stock Forecast

Stock analysts have set a broad target range for NFLX stock. The most bearish predict a pullback to $335, while the most optimistic predict a high of $700. Netflix stock’s media target is $574.43, a 3.85% upside based on the most recent price of $553.15. The overall rating for the stock is a moderate buy.

Should You Buy Netflix Stock?

Netflix stock suffered a major blow to its post-pandemic performance. However, it has successfully navigated the challenges of 2022 and is back to posting nearly 30 million net additions annually. Additionally, its ad business is bearing fruit, with the company stating that ad-based subscriptions have risen by almost 70%.

Netflix has also announced that it plans to spend nearly $17 billion on content in 2024, which is similar to the 2022 levels. In 2023, Netflix content spending decreased significantly due to the actors’ and writers’ strikes. Content is king, and Netflix will likely grow its subscriber numbers again in FY24.

Netflix still has numerous growth avenues it can exploit. For instance, it recently added Grand Theft Auto to its games collection. It also continues to succeed in striking licensing deals with legacy media firms.

Netflix also has a first-mover advantage and great name recognition. Its substantial market share and free cash flow mean it is well-positioned to weather any storms that may come. Based on these factors, Netflix will likely continue to grow in 2024 and beyond. However, the skeptics’ views need to be taken into consideration. Despite this, based on its recent Q4 numbers and the positive reaction they have received, the moderate buy rating accurately represents the stock’s medium-term forecast.

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