One of the most essential factors in determining the company’s stock price is the all-important quarterly earnings call. And the main figure that has the most impact on a firm’s share price is after-tax net income, which can then send the company’s price per share up or down.
Netflix’s next earnings report is in September — will the streaming giant’s stock go up or down after the numbers are released? Let’s look at the history of the company’s past earnings reports for a clue.
The Bull Case For Netflix
With so many other streaming services — Disney Plus, Paramount Plus, Discovery Plus, Apple TV Plus, HBO Max, Hulu, Amazon Prime Video, Peacock, and so on — it can be easy to dismiss Netflix as a former giant who now faces some seriously stiff competition.
While all of these other streamers might lower Netflix’s market share, there are several facts that put the company on much sturdier ground than the competition.
First, the disappointing news: Netflix’s last earnings report indicated that the streaming service isn’t gaining as many subscribers as it needs if Netflix hopes to remain on top. As a result, shares were down for a few days.
However, given the immense boom in subscribers (and, consequently, a boom in revenue) that the company saw in the months following the onset of the coronavirus pandemic, this slight dip didn’t seem to concern the company even a little bit — the same goes for bullish investors, too.
While the number of new subscribers seems to be down these last couple of quarters, the company continues to dominate in global markets — something most other streaming services can’t claim. As such, subscriber counts just keep growing overseas, and will likely continue to increase as economic lockdowns remain in place globally.
NFLX Earnings Estimates
Taking into account the disappointing numbers from Netflix’s last earnings report, analysts have adjusted their estimates accordingly for Netflix’s next earnings report — currently set for mid October.
For the current quarter, which began in June and ends in September, 35 analysts have an average estimate of $7.32 billion. The lowest estimate is $7.14 billion and the highest is $7.48 billion.
As for the next quarter, beginning in September and ending in December, the average earnings estimate appears to be $7.48 billion for the quarter, with $7.35 billion being the lowest estimate and $7.73 billion being the highest.
Netflix Earnings Whisper Number
While these official earnings estimates are one thing, it’s also worth taking into consideration Netflix’s whisper number — the unofficial estimate that investors surmise will be reported.
For Netflix’s third quarter, the whisper number is $2.57 EPS (or earnings per share). This falls significantly below the average estimate of $3.15 EPS from 35 analysts for the current quarter.
If this whisper number proves to be correct, retail investors and traders can expect to see some major changes to Netflix’s price per share.
NFLX: The Bearish Argument
We’ve heard the bullish argument for investing in Netflix (NFLX), but now it’s time to consider the bearish argument: The COVID-19 pandemic will eventually end, and when that happens, people all over the world are going to start canceling the Netflix subscription they no longer have the time (or maybe even the money) to use anymore.
They will remain a global streaming powerhouse, to be sure, especially as they keep winning Emmy nominations and Academy Awards, but a gradual cancellation of unused subscriptions as life “returns to normal” (whenever that happens) may well result in the company underperforming in the near future.
A more potent threat to Netflix is the mass adoption of Disney (DIS). It took almost a decade for Netflix to grow to 200 million subscribers. Disney managed to grow its streaming service to 100 million subscribers in a fraction of the time.
That has some Netflix investors worried that Disney, with its enormous content library, can pose a real threat to Netflix which must pay to build its own original content – as opposed to leveraging investments made in the past like Disney can.
NFLX Post Earnings History
Looking at Netflix’s post-earnings history and judging by the performance of the company’s stock in the wake of past quarterly earnings calls, it’s fair to predict that — no matter what the numbers end up being — Netflix’s shares are likely to experience significant price volatility.
Simply put, Netflix shares tend to go a little haywire in the days that follow earnings reports, regardless of whether they’re good or bad.
Historically NFLX stock will shoot up, then dip down, or drop low, then shoot up. But NFLX share price inevitably ends up settling down from fundamental event price volatility after a couple of weeks. Retail investors and traders should expect to see something similar following the earnings reports to come.
Will Netflix Go Up After Earnings?
Historically, we know that Netflix’s price per share tends to go into a state of chaos in the days that follow earnings.
Likewise, we also know that there are many factors that are directly impacting the company’s numbers: Things like:
- subscriber count growth,
- international adoption,
- comparisons to competitors; and
- the number of awards or nominations granted
all play a part in the kind of activity to follow the upcoming earnings report in October. With all of this taken into consideration, history would favor a move higher post-earnings but the competitive landscape has shifted against the pioneering streaming service, and that would suggest price volatility is to be expected. The earnings whisper number would suggest disappoint risk is high.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.