Nasdaq 100 Outlook: Where next for Netflix stock ahead of Q1 earnings?

When will Netflix release Q1 2023 earnings?

Streaming giant Netflix will release first quarter earnings after US markets close on Tuesday April 18. A conference call will be held on the same day at 1500 PT.

Netflix Q1 earnings consensus

Netflix is expected to report a 4% year-on-year rise in first quarter revenue to $8.2 billion, in-line with the company’s guidance. Its operating margin is forecast to come in at 20.1% and diluted EPS is forecast to fall 19% from the year before to $2.87.

Netflix Q1 earnings preview

Last year was one of the toughest on record for Netflix. Subscriber growth slowed and it lost its title as the market leader after rival Disney gained momentum, while revenue grew at its slowest pace on record and earnings fell for the first time in seven years. That saw Netflix shares more than halve in value!

However, the tougher conditions prompted Netflix to radically shake-up its business with plans to revive revenue growth and reinvigorate its bottom-line by cracking down on password sharing and introducing its much-hyped ad-powered tier, which has led markets to believe that Netflix can get back on the right path in 2023, with the stock having risen 15% since the start of the year.

That puts the pressure on Netflix to deliver in 2023 and show it can reap rewards from its new strategy, but it could prove to be another bumpy start as it transitions from one model to another.

Netflix, which believes over 100 million households around the world are poaching its service by using someone else’s password, has already started to encourage users in some countries to set up their own account or take advantage of its new paid sharing feature. Netflix has already seen some pushback as this has led to some users cancelling their accounts and it has since broadened its crackdown into other regions during the first quarter. That could hold back subscriber growth in the near term, but Netflix has said this should recover as more users set up their own accounts or add one on to an existing one. Regardless, the idea is to improve revenue growth, which stalled to its slowest pace on record at just 1.9% in the last quarter. Netflix has said it expects ‘constant currency revenue growth to accelerate over the course of the year’ and that both operating margins and profit should also improve.

Netflix has said it expects to report ‘modest positive paid net adds’ in the first quarter of 2023. Wall Street thinks Netflix will add around 1.9 million subscribers to end the period with 236.36 million of them on its books.

Importantly, Netflix is no longer providing guidance for subscriber additions each quarter and is instead focusing more on revenue and other financial metrics. However, it has already predicted that paid net additions is ‘likely to be greater’ in the second quarter versus the first. Look out for commentary here incase this view has changed.

Investors are eagerly awaiting to hear about the initial performance of its new ad-supported tier that offers a lower price point and is supplemented by advertising income. The service was launched with the help of Microsoft across 12 countries in November and Netflix said it was ‘pleased’ with the initial results in its last set of results, although confessed there is ‘much more still to do’.

While this has provided hopes that advertising can provide a new catalyst in 2023, it may be a slow and steady burn that doesn’t really kick in until late in the year. The company has previously said it believes the service will eventually bolster revenue and profits but that ‘the impact on 2023 will be modest given that this will build slowly over time’. Netflix chief financial officer Spencer Neumann said in the last conference call that it ‘wouldn’t get into a business’ like advertising unless it believed it could provide at least 10% of revenue, stating he hopes this will be ‘much more over time’.

Netflix’s operating margin will fall in the first quarter to around 20% from 25% the year before down to the timing of content spend. It is hoping to deliver a margin based on foreign exchange rates, which are currently providing a significant headwind, of 18% to 20% over the full year.

The key job is to demonstrate that revenue and profitability is on course to improve in 2023. That is especially important considering Netflix is boasting that it is a profitable business whilst rivals like Disney remain in the red and continue to burn through cash. Netflix has said it is aiming to generate at least $3 billion in free cashflow in 2023, which would be almost double the $1.6 billion delivered in 2022.

Where next for NFLX stock?

Netflix shares are up 15% since the start of 2023, although it has found it more difficult to keep climbing since hitting 10-month highs back in February.

The key level to watch right now is $333. This is broadly aligned with the 50-day moving average and was the floor we saw before the stock gapped lower a year ago that remerged as a level of resistance in late December and early January. It has tested this level and rebounded twice in the last three sessions alone.

A drop below here could see it slip toward $311 and a sharper fall could bring the firmer level of $250 back into play.

A positive reaction to the results could allow it to try and climb back toward the 2023-high and target $370. From there, it can look to move above $396, which would see it return above pre-pandemic levels. Notably, the 43 brokers that cover the stock have an average target price of $357.60 on Netflix, suggesting there is more limited upside potential of less than 6% from current levels.

Take advantage of extended hours trading

Netflix will release earnings after markets close and most traders must wait until they reopen the before being able to trade. But by then, the news has already been digested and the instant reaction in share price has happened in after-hours trading. To react immediately, traders should take their positions in pre-and post-market sessions.

With this in mind, you can take advantage of our service that allows you to trade Netflix and other tech stocks using our extended hours offering.

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