Netflix Earnings: Will the Streaming Giant's Rally Continue?
Netflix Earnings: Will the Streaming Giant's Rally Continue?
It’s the first FAANG stock to report and will help set the tone for tech this earnings season
- Netflix is scheduled to report Q2 earnings on Thursday.
- The streaming stock is outpacing the S&P 500 by a factor of nearly seven times since the start of the year.
- The options market expects a 7% move for Netflix earnings, in line with the average for S&P 500 companies.
Netflix (NFLX) is scheduled to report earnings on Thursday, after the market close. It will be the first of the FAANG stocks to report and will help set the tone for tech stocks this earnings season.
The streaming giant stopped reporting subscriber numbers earlier this year, with the company instead focusing on user engagement and other metrics. Netflix reported a 12.5% increase in revenue from the previous year last quarter and guided for a 15% annual growth rate for the second quarter. The company cited recent price changes and upbeat advertising spend for the lofty projection in last quarter’s earnings.
Netflix also has a solid slate of content releases on its schedule for the rest of the year. Wednesday Season 2 is due out in August, and Stranger Things will follow later this year. Earlier this month, The Wall Street Journal reported Netflix and Spotify are in talks to stream live concerts and music award shows on the platform.
Still, there are risks for Netflix. Consumers have tightened their spending recently amid concerns over the economy amid the ongoing trade war. The higher pricing schemes that Netflix has implemented could be a double-edged sword at a time like this, especially considering increased competition from streaming competitors. If consumers dialed back on their streaming habits, it could show up in Netflix’s revenue numbers.
What do investors anticipate?
According to TradingView, Netflix is expected to post second quarter earnings per share (EPS) of $7.07 on $11.04 billion in revenue. That would compare to an EPS of $4.88 on $9.56 billion in revenue a year ago.
Last quarter, Netflix reported EPS of $6.61 on $10.54 billion in revenue. Over the past four quarters, Netflix has consistently managed to beat on EPS and revenue expectations, with the latest quarter seeing the largest upside surprise on EPS.
Analysts are mostly bullish on the stock, with 34 strong buy and buy ratings, 17 hold ratings and only one strong sell rating. The highest one-year price target for the stock is 1,600, or a 26.8% gain from today’s 1,262 stock price.
Trading Netflix earnings
Netflix traded with an implied volatility rank (VIR) of 36.1, meaning volatility is subdued compared to the past twelve months of trading. The options market sees an expected move of +/- 88.11 points, or 7% of the current stock price. That’s in the middle of the average 5% to 10% earnings move for S&P 500 companies.
Since the start of the year, Netflix is up 43% compared to a 6% gain in the S&P 500. The outperformance highlights Netflix’s strong position and optimism from investors, but it also means Netflix could be prone to disappoint if it doesn’t deliver on results.
For traders with a directional bias, selling a call or put spread just outside the expected move offers a defined-risk way to express a bullish or bearish view. Netflix is trading near all-time highs, leaving little technical resistance to note. However, the June swing low of 1,180.61 may offer support on a pullback.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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