Netflix’s Stock Performance: Key Factors and Future Outlook

Netflix (NFLX) has gained attention on Zacks.com’s most searched stocks list. Investors should consider several key elements that may impact the stock’s future performance.

Over the last month, shares of this streaming giant have declined by 4%, contrasting with the Zacks S&P 500 composite, which fell by 12.1%. The Zacks Broadcast Radio and Television industry, where Netflix operates, has experienced a 13.4% downturn in the same period. This raises an important question: Where is the stock moving in the near term?

Market trends and media speculation regarding significant changes in business prospects often cause a stock to trend upward, leading to immediate price fluctuations. However, fundamental factors ultimately guide long-term investment decisions.

Revisions to Earnings Estimates

At Zacks, we prioritize changes in a company’s earnings projections. We assert that the fair value of its stock hinges on the present value of future earnings.

This analysis examines how sell-side analysts are updating their earnings estimates based on the latest business trends. A rise in the earnings estimates boosts the fair value of a stock. When the fair value exceeds the current market price, investor demand typically increases, propelling the share price higher. Research shows a strong correlation between earnings estimate revisions and short-term price movements.

For the current quarter, Netflix is forecasted to deliver earnings of $5.74 per share, reflecting a year-on-year increase of 8.7%. Notably, the Zacks Consensus Estimate has remained stable over the past 30 days.

The consensus earnings estimate for the current fiscal year stands at $24.58, indicating a year-over-year increase of 24%. This estimate, too, has seen no changes in the past month.

Looking ahead to the next fiscal year, the consensus earnings estimate is $29.66, suggesting a growth of 20.7% compared to the previous year. This estimate has also remained constant over the last month.

Employing our proprietary stock rating tool, the Zacks Rank, offers insight into a stock’s price direction based on earnings estimate revisions. Currently, Netflix holds a Zacks Rank of #3 (Hold) due to recent consensus estimate changes and related factors.

The chart below illustrates the evolution of the company’s forward 12-month consensus EPS estimate:

12 Month EPS

Projected Revenue Growth

While earnings growth is a strong indicator of a company’s financial health, sustained revenue growth is essential. A firm cannot long-term deliver earnings growth without also increasing its revenue.

For Netflix, the consensus sales estimate for the current quarter is $10.54 billion, representing a year-over-year increase of 12.5%. The estimates for the current and next fiscal years are $44.47 billion and $49.59 billion, reflecting growth of 14% and 11.5% respectively.

Last Reported Results and Surprise History

In its most recent earnings report, Netflix generated $10.25 billion in revenue, up by 16% from the previous year, while EPS of $4.27 sharply compared to $2.11 last year.

The reported revenue exceeded the Zacks Consensus Estimate of $10.12 billion, marking a surprise of 1.29%. EPS also beat expectations, showing a surprise of 1.67%.

Notably, Netflix has outperformed consensus EPS estimates in each of the past four quarters, along with consistently exceeding revenue estimates during this period.

Valuation

Understanding a stock’s valuation is crucial when making investment decisions. Accurate investment requires assessing whether current prices accurately reflect a company’s intrinsic business value and growth potential.

To evaluate whether a stock is under, fairly, or overvalued, comparing current valuation multiples—like price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF)—against historical values is informative. Additionally, analyzing these metrics relative to peers can provide context on a stock’s pricing.

Netflix receives a grade of D in the Zacks Value Style Score system, indicating it is trading at a premium compared to its peers. For more details on valuation metrics that influence this grade, click here.

Bottom Line

The insights mentioned here and additional resources from Zacks.com may assist investors in deciding whether to heed the current market buzz around Netflix. The Zacks Rank of #3 suggests that the stock may perform in line with the broader market in the near future.

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This article was 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.