Can Netflix Continue the Recovery

After a recovery in the third quarter, can the mega streaming service close out the year with a rebound, or will the trend return downward again?

EPS to fall despite optimistic consensus

In the year's first half, Netflix experienced net subscriber losses but returned to growth in the third quarter. However, the new numbers were lacklustre compared to growth in prior years. Revenue growth has been slowing down in the same period, and the company forecasts only 0.9% revenue growth for the year's final quarter.

The consensus among analysts is a little more optimistic, expecting EPS of $0.58 compared to the company's projections of just $0.36. Still, that would be the fourth consecutive quarter of falling EPS, lower than the prior year. This was a dramatic turn for the company, particularly following the release of several major titles that were expected to drive up viewership.

Focus on Ad-subscriber growth mix

The key point for investors looking through the earnings report is likely to be subscriber numbers. Netflix launched its ad-supported plans in November in 12 countries, with further rollouts expected in the coming months. Now is the time to see what happened to the subscriber numbers, if this allowed the company to capture more market or if people switched to the cheaper plan. Then there is the question of whether ad revenue from the 5 minutes of adverts per hour is enough to compensate for the loss of subscriber revenue.

Netflix is forecasting 4.5M new subscribers this quarter, which would put it back to the growing range it was experiencing before the inflation crisis. But the guidance didn't specify what kind of subscribers they were. Then there is the issue of what the company will guide for the coming quarter. A strengthening dollar had impacted preliminary income figures, but that trend has reversed in the last couple of months as the Fed seems close to the end of its hiking cycle. 

Netflix continues recovering

Netflix has recovered nearly 40% of last year's losses after reversing on May 12, 2022, pulling off an incredible 110% gain since. Reached on December 13, $333 has offered a pullback as price action turned overlapping, printing an ending wedge pattern that led prices to $273. The trend has continued upwards, but the stock has formed a double top after a false break to $336. It begs whether a more profound correction within the upward channel and towards $250 may be due. Otherwise, prices could accelerate towards the $400 level.

Source: Spreadex

Key takeaways

Netflix is expected to show lacklustre revenue growth and a meagre EPS. The consensus among analysts is a little more optimistic, though it would still be the fourth consecutive quarter of falling EPS. The focus is on the impact of Netflix's ad-supported plans on subscriber numbers, and whether the ad revenue will compensate for the loss of subscriber revenue and the effect of currency fluctuations on subscriber growth.