Netflix Q3 Earnings Preview: Will Price Hikes and Ad-Tier Growth Offset Flat Subscribers?

Netflix Q3 Earnings Preview: What to Expect

As Netflix prepares to release its third-quarter earnings report, analysts and investors are watching closely. This release marks a shift in focus from subscriber growth to financial metrics like revenue and margins. Key themes include the advertising-supported business, password-sharing crackdown impact, and potential price hikes.

Earnings and Revenue Expectations

Analysts expect Netflix to report earnings per share (EPS) between $5.09 and $5.17, with a consensus of $5.12. Revenue is projected to reach $9.76 billion. Subscriber numbers are anticipated to be flat at around 282.15 million paid memberships, reflecting the tapering effects of the password-sharing crackdown.

Shift Towards Advertising Revenue and Price Hikes

The performance of Netflix’s ad-supported tier, introduced in late 2022, will be a significant point of interest. Some analysts believe advertising represents the “likeliest source of future revenue growth” for Netflix. Additionally, price hikes are expected soon, seen as crucial for driving revenue growth in mature markets.

Subscriber Trends: U.S. Saturation vs. International Growth

Subscriber growth in North America is expected to remain minimal due to market saturation. Future growth is projected to come primarily from international markets, particularly in Asia-Pacific and Latin America. Netflix’s strategy of producing more region-specific content is expected to boost international subscriptions over the long term.

Stock Price and Market Reaction

Netflix’s stock is currently trading near $692, just 6% below its all-time high. The stock has surged 44% year-to-date and is up around 95% over the past 12 months. Large price swings typically follow earnings reports, and this quarter is expected to be no different.

Bullish vs. Bearish Outlooks

Bulls point to Netflix’s ability to generate hit shows and its growing international footprint. The company’s robust financial health, with $7 billion in cash and expected free cash flow of over $6 billion in 2024, supports a bullish stance.

Bears caution that Netflix’s U.S. market is mature, and future growth will depend on price hikes and international expansion. Rising competition from other streaming services adds uncertainty to Netflix’s ability to maintain its dominant position.

Conclusion: Bullish in the Short-Term, Guarded for Long-Term

In the near term, Netflix is likely to post solid results, supported by advertising growth and potential price hikes. However, the longer-term outlook is more uncertain, with concerns around U.S. market saturation and growing competition. While the stock could see a short-term boost, investors should remain cautious about long-term risks associated with slowing subscriber growth and rising competition.