What to expect from Netflix 1st quarter earnings?

Netflix (NFLX) shares have underperformed the market in 2022, down 35 percent and 46 percent in the last three and six months, respectively. In addition, the stock has dropped 38% and 37% in the last nine and twelve months, respectively. Is this a good time to buy?
After the closing bell on Tuesday, the streaming pioneer will release its first quarter fiscal 2022 earnings figures. Although the label “pioneer” is still appropriate, Netflix is no longer alone. Companies like Disney (DIS), which owns Hulu, are catching up. As a result, some market participants are questioning if the corporation can keep its crown as the king of streaming. Is the recent drop the start of a new trend or an opportunity to buy?

According to Morgan Stanley analyst Benjamin Swinburne, this is not the case. Swinburne lowered his Netflix price target to $425 per share from $450, citing falling projections for net subscriber increases. The analyst reduced his Q1 estimate for global paid net new subscribers from 2.5 million to 2 million, but keeping his Equal Weight rating. While the market anticipates Netflix will continue to be a successful streamer in 2022, Swinburne does not expect Netflix to add new customers at the same rate as it did before the epidemic, which was around 25 million per year.

Nonetheless, Netflix is by far the market leader, with more than 222 million global paid customers, ahead of the aforementioned Disney and recent streamers such as HBO Max (T) and Apple TV+ (AAPL). However, the company’s market share has dropped from 51.4 percent in the first quarter of 2020 to 43.6 percent in the fourth quarter of 2021. As a result, investors are questioning if Netflix can keep its crown as the king of streaming. On Tuesday, the corporation can answer these queries by pounding on the top and bottom lines and confidently guiding.

Netflix is expected to make $2.90 per share on $7.93 billion in revenue for the quarter ending in March, according to Wall Street. This compared to earnings of $3.75 per share on $7.16 billion in revenue in the prior quarter. Netflix’s earnings are expected to fall 2.3 percent year over year to $10.98 per share in the fiscal year ending in December, while revenue is expected to climb 12.4 percent to $33.37 billion.

In the next four years, the streaming market is expected to increase by more than 18 percent yearly (compound). Netflix has only penetrated 30% of the overall addressable streaming industry, with a total addressable market of 750 million subscribers. In other words, the corporation still has to grab 70% of the market. Netflix has a significant advantage when combined with the lowest churn in the industry. Original content from the company, such as Squid Game and La Casa De Papel, has helped it build its subscriber base.

Netflix, on the other hand, needs to resurrect its growth metrics. Subscriber additions in Q4 fell short of both Street and company projections, totaling 8.28 million worldwide, well below the firm’s own expectations of 8.5 million and Street estimates of 8.32 million. Revenues increased 16 percent year over year to $7.71 billion, but operating income declined 34% to $631.8 million, exceeding expectations of $559 million. The fact that Q4 free cash flow was negative at $569 million was also concerning.

These findings were predictably disappointing to investors, which explain the stock’s year-to-date depreciation. Netflix’s management has demonstrated its ability to pivot and make the required adjustments in order to stay competitive. On Tuesday, though, the market will be watching to see if Netflix can re-accelerate its revenue growth rate above 20%.