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Netflix Share Price Leaps in After-Hours Trading on Forecast Beating Results

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Wall Street’s earnings season continued in the positive vein set by the financial sector last week as media and tech giant Netflix posted a series of results that exceeded analysts’ forecasts. After a rough few weeks for the valuations of the FAANG (Facebook, Apple, Amazon, Netflix and Google-owner Alphabet) tech giants, the resulting boost to Netflix’s share price when US markets open today will be welcome. The company’s Q1 earnings report showed forecast-beating new subscriber numbers as well as revenue figures coming in slightly ahead of schedule. Earnings met forecasts.

Netflix’s share price leapt 6% in extended trading after the market close yesterday as markets reacted positively to the earnings report. It can be presumed online stock brokers will be doing a brisk trade in Netflix stock when markets open today. Those who have already been investing online in the company will be glad of the recovery. A recent drop from the March 9th high of $331.44 to $283.67 on April 3rd hit investors in the pocket as the company suffered along with peers in a wider correction for big tech.

The recent Facebook data breach scandal and Trump’s attacks on Amazon over tax paid combined to arouse market concerns that big tech’s years of unbridled and largely unregulated growth could be drawing to a close. Expensive market pricing of FAANG shares have been driven by the assumption of significant growth continuing into the foreseeable future. The threat of regulators and the tax man reigning the tech giants in dented that faith, leading to a 6% drop in the FAANG+ index of tech companies in one week towards the end of March. It was by far the biggest weekly drop the index has seen since its 2014 formation.

Within that context, yesterday’s strong set of results will be particularly well received by investors holding Netflix stock. Hopefully it is also a trend that can be carried forward by other big tech companies posting their own earnings reports in coming days. The key figures in yesterday’s earnings report were:

  • Earnings per share of $0.64 matching estimates
  • $3.7 billion in revenue, marginally ahead of the estimated $3.69 billion
  • 7.41 million new subscribers, well ahead of the 6.5 million forecast
  • Negative free cash flow of $297 million

A particular highlight was the performance in international markets, which saw total Netflix subscribers outside of the USA overtake the domestic market for the first time. International subscriber numbers have leapt by 50% in a year. Forward guidance also saw earnings per share for Q2 estimated at $0.79, well ahead of the estimated $0.69 and presumably a reflection on the company’s success in attracting new subscribers.

The key driver of Netflix’s success has been heavy investment in its own proprietary content production. Popular TV shows and films produced by and exclusive to the streaming service is giving it an edge on rivals such as Amazon and Disney. The scale of the investment in content was a strategic risk but one that has paid off. Foreign-language shows with subtitles, created primarily for international markets, have even proven popular with Netflix’s notoriously insular domestic US audience. Netflix movies have also been released in cinemas at the same time as going live to subscribers, generating additional revenue from consumers willing to pay more to see them on the big screen. Five were nominated for Oscars.

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There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

Paul

The author Paul