Netflix (NFLX) shares have risen 63.3% year to date (YTD), significantly outperforming the Zacks Consumer Discretionary sector, which has seen an 8.6% increase. Additionally, it’s outperformed the Zacks Broadcast Radio and Television industry’s 37.3% appreciation.
This impressive performance is largely due to a growing global subscriber base, supported by enhanced local and international content and higher levels of viewer engagement. By the end of the third quarter of 2024, Netflix reported 282.72 million paid subscribers across 190 countries and anticipates a boost in paid additions for the fourth quarter due to seasonal trends.
Expansion of both domestic and international content offerings is driving user growth. Netflix’s investments in creative projects in India, Japan, Thailand, Korea, and other international markets have proven effective in enhancing user retention and contributing to revenue growth.
Strong Engagement Metrics
Netflix, Inc. Price and Consensus Chart
During the second quarter of 2024, user engagement averaged 2 hours of viewing per member per day, indicating a highly engaged audience.
Content Expansion: Focus on India and Beyond
Netflix’s upcoming documentary, Nayanthara: Beyond the Fairytale, featuring prominent figures like Vignesh Shivan and Taapsee Pannu, is set to premiere on November 18, 2024. This project reflects Netflix’s strategy to increase its active user base through regional programming and a diverse foreign language content portfolio.
The company’s historical drama, Maharaja, starring Vijay Sethupathi, accumulated a remarkable 22.6 million views following its June release, demonstrating the effectiveness of Netflix’s approach in India.
Alongside Indian content, Netflix is also increasing its offerings in countries such as Japan, Korea, Brazil, and Thailand. Two highly anticipated Latin American productions, Senna, a biopic of legendary Formula One driver Ayrton Senna, and A Hundred Years of Solitude, based on Gabriel García Márquez’s novel, are scheduled for December 2024. These releases are expected to boost on-demand viewership in the fourth quarter of 2024.
Moreover, returning series such as Squid Game S2 and Outer Banks S4, alongside Black Doves, featuring Keira Knightley, are likely to further enhance user retention and subscription growth for Netflix.
To meet viewer needs effectively, Netflix is customizing its content and refining its pricing strategies. While the company has raised prices in EMEA countries, adjustments have also been made in Spain and Italy.
Netflix has also strengthened its market position by adding live events. Upcoming high-value events include a boxing match between Mike Tyson and Jake Paul on November 15, 2024, and the NFL Christmas Day games featuring the Kansas City Chiefs against the Pittsburgh Steelers and the Baltimore Ravens against the Houston Texans. These events are anticipated to positively impact viewing hours in the fourth quarter of 2024.
Positive Earnings Outlook
For the fourth quarter of 2024, Netflix forecasts revenues of $10.12 billion, reflecting a 15% increase from the previous year. The consensus estimate for fourth-quarter revenues stands at $10.15 billion, suggesting a nearly 15% yearly growth.
The company projects earnings of $4.23 per share, with the Zacks Consensus Estimate at $4.20 per share, indicating a 99.05% increase year over year. The overall earnings estimate for 2024 is set at $19.78 per share, reflecting a 64.42% annual increase.
NFLX has exceeded the Zacks Consensus Estimate in three of the last four quarters, with an average surprise of 5.73%.
Stay informed with the upcoming earnings announcements by checking the Zacks Earnings Calendar.
For fiscal 2025, Netflix anticipates revenues between $43-$44 billion, representing 11-13% growth from the 2024 guidance of $38.9 billion, driven by an increase in paid subscribers. The company is also targeting an operating margin of 28% for fiscal 2025, slightly up from a forecast of 27% in 2024, with ad revenues expected to roughly double.
Investor Considerations
Despite the positive outlook, Netflix stock currently holds a Value Score of D, indicating a potentially inflated valuation. The forward 12-month Price/Earnings (P/E) ratio stands at 34.4X, surpassing the Zacks Consumer Discretionary sector’s average of 19.36X.
The company faces significant competition from players such as Fox (FOXA), Roku (ROKU), and TEGNA (TGNA). While ROKU benefits from the popularity of its channel, FOXA capitalizes on viewers of Tubi and Fox News, while TGNA has long-term agreements with major networks that could impact Netflix’s market share.
Nevertheless, NFLX’s growing international content offerings and expanding audience could present favorable opportunities for investors. Netflix currently holds a Zacks Rank of #2 (Buy), suggesting it’s a stock worth considering.
You can view the complete list of Zacks #1 (Strong Buy) Rank stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
