Netflix Earnings: What to Look For

Key Takeaways

  • Analysts estimate EPS of $2.12 vs. $1.47 in Q3 2019
  • Global streaming paid memberships are expected to rise sharply YOY.
  • Revenue expected to increase as consumers watch more streaming entertainment amid COVID-19 pandemic.

Netflix Inc. (NFLX) is among a group of tech companies that are not only unfazed by the COVID-19 pandemic, but actually are thriving because of it. Demand for Internet services is rising as many people remain confined to their homes, either for precautionary reasons or because of government restrictions. In this environment, demand has jumped for Netflix's streaming entertainment service, boosting its shares more than 65% in 2020.

Investors will be looking for just how much Netflix has benefited over the past three months when the company reports earnings on October 20, 2020 for Q3 FY 2020. Analysts expect the company to post robust revenue and earnings growth compared to the same period a year earlier.

Investors also will watch another key metric: Netflix's global streaming paid memberships. Growth in paid memberships accelerated in the last quarter due to the pandemic, and analysts estimate global streaming paid memberships will rise faster than the same quarter a year ago, but will decelerate from the most recent quarter.

Shares of Netflix have soared over the past year and have dramatically outperformed the broader market, especially since the pandemic-induced market crash earlier this year. The stock fell less than the broader stock market during the market's plunge in March, and has rebounded at a much faster pace to reach new highs. The company's shares have provided a total return of 90.7% over the past 12 months, well above the S&P 500's total return of 16.3%, as of October 15, 2020.

The stock plunged after reporting Q2 FY 2020 earnings in July that missed analysts' expectations by about 12%. However, Netflix posted earnings per share (EPS) that rose 165.0% (YOY), a sharp acceleration from the 106.6% growth reported in Q1 FY 2020. Revenue grew 24.9% YOY in Q2 compared to 27.6% in Q1. The company's shares have been quite volatile but have mostly rebounded since the Q2 report.

Analysts forecast another strong quarter in Q3 FY 2020, but expect both EPS and revenue growth to decelerate from prior quarters. EPS is expected to rise 44.0% YOY, which would be its slowest EPS growth since Q2 FY 2019. Revenue will grow an estimated 21.4%, its slowest quarterly pace in more than four years, and continuing a deceleration trend that began on a sequential basis after growth peaked at a rate of 31.1% in Q3 FY 2019.

Netflix Key Metrics
  Estimate for Q3 2020 (FY) Actual for Q3 2019 (FY) Actual for Q3 2018 (FY)
Earnings Per Share ($) 2.12 1.47 0.89
Revenue ($B) $6.4 $5.2 $4.0
Global Paid Streaming Memberships (M) 195.7 158.3 130.4

Source: Visible Alpha

Another key metric for Netflix, as mentioned above, is global streaming paid memberships. The metric measures the number of global users that have signed up and paid for a subscription to receive streaming services. Netflix's core strategy is to grow its streaming membership business globally as it is the company's primary source of revenue. That strategy is becoming increasingly challenging amid rising competition from new streaming services like Walt Disney Co.'s (DIS) Disney+, Apple Inc.'s (AAPL) Apple TV+, NBCUniversal's Peacock, and Quibi.

Netflix saw its global streaming paid memberships soar 27.3% to 192.9 million in Q2 FY 2020. It was the fastest pace of growth in paid subscriptions since at least Q2 FY 2017 as people confined to their homes amid the pandemic increased their consumption of streaming entertainment. Analysts are expecting continued growth for Q3 FY 2020, forecasting a 23.6% YOY rise in paid streaming memberships. While that would be a slight slowdown from the most recent quarter, the pace would be faster than the 21.4% growth in memberships in Q3 FY 2019.

One challenge the pandemic is posing to the streaming industry is the ability to produce content, since government restrictions have shut down film production in many parts of the world. However, this is also a point where Netflix may have a slight advantage compared to newer streaming services: it's backlog of already-produced content is slightly larger than companies that have just entered the space. That means Netflix will be able to offer fresher content to its current and potential subscribers, thus bolstering paid memberships, revenue and profits.

Article Sources

  1. Netflix Inc. "Netflix to Announce Third-Quarter 2020 Financial Results." Accessed Oct. 14, 2020.

  2. Visible Alpha. "Financial Data." Accessed Oct. 15, 2020.

  3. Yahoo! Finance. "Netflix, Inc. (NFLX): Analysis." Accessed Oct. 15, 2020.

  4. Visible Alpha. "Financial Data." Accessed Oct. 15, 2020.

  5. Netflix Inc. "Form 10-K for the fiscal year ended December 31, 2019," Pages 1 & 19. Accessed Oct. 15, 2020.

  6. Bloomberg. "There's Still Nothing Even Close to Netflix." Accessed Oct. 15, 2020.

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