Netflix’s Q1 Earnings Exceed Expectations Amid Market Challenges

Netflix NFLX shares rose by +3% in today’s trading session after the company significantly surpassed its Q1 earnings expectations ahead of the Easter holiday last Thursday.

This uptick occurs as the broader market faces another selloff, influenced by President Trump’s tariffs and his criticism of Fed Chair Jerome Powell’s interest rate policies.

Netflix’s Q1 Financial Performance

In Q1, Netflix reported earnings of $2.89 billion, translating to $6.61 per share. This result exceeded EPS expectations of $5.69 by 16% and marked a 25% increase from last year’s $5.28 per share on a net income of $2.33 billion. Year-over-year sales grew over 12% to $10.54 billion, though this slightly fell short of the Zacks Consensus estimate by 0.04%.

The company credits its robust subscription plans and increased advertising revenue for the strong quarterly performance. Importantly, Netflix plans to discontinue quarterly subscriber counts as it pivots towards prioritizing revenue growth and other financial metrics. The company has outperformed sales estimates in three of its last four quarterly reports and has exceeded the Zacks EPS Consensus for five consecutive quarters.

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Positive Outlook for Upcoming Quarters

Looking ahead, Netflix forecasts Q2 sales to hit $11 billion, exceeding the Zacks estimate of $10.96 billion and indicating a 14% growth. Moreover, the company projects a Q2 EPS of $7.03, surpassing the current Zacks Consensus of $6.22 per share by 27%.

Additionally, Netflix anticipates full-year revenue between $43.5 billion and $44.5 billion, aligning with Zacks’ projection of $44.4 billion, representing a 14% growth. Based on Zacks estimates, Netflix’s revenue is expected to climb by another 11% in fiscal 2026, reaching $49.44 billion.

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Netflix’s Resilience as a Defensive Asset

Leveraging its successful subscription models, analysts note that Netflix may sustain and even expand its subscriber base amidst economic challenges. The company’s ad-supported plan, priced at $7.99 per month, provides an affordable option for consumers looking to cut back on dining out and entertainment spending.

So far in 2023, NFLX shares have increased by +11%, contrasting with the S&P 500’s 10% decline and the Nasdaq’s -18%. Over the past two years, the stock has surged by +200%, significantly outperforming the broader market’s roughly +30% returns.

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Assessing Netflix’s Valuation Metrics

Currently trading around $1000 per share, Netflix’s stock carries a forward earnings multiple of 39.7X. While this is a premium compared to the benchmark’s 20.3X and Disney’s DIS 15.5X, NFLX stands at a notable discount to its five-year peak of 88.5X and is closer to the median of 37.3X during this timeframe.

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Conclusion

Currently, Netflix’s stock holds a Zacks Rank of #3 (Hold). However, given the strong Q1 results and positive guidance, a buy rating may soon be on the horizon. Earnings estimate revisions could trend upward in the upcoming weeks, indicating potential short-term gains and assisting in normalizing Netflix’s P/E valuation, assuming a continued rally from present levels.

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This article originally published on Zacks Investment Research (zacks.com).

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.