How Might Netflix’s Q4 Earnings Affect its Share Price?

While we await the confirmation of such numbers from Netflix, which is set to announce its Q4 results after US markets close on Tuesday, a lot of tailwinds for this pandemic darling has already been baked into its share prices.

How have Netflix’s share prices performed so far in 2021?

In fact, its stock prices have dropped by nearly 8 percent so far this year, and is still keeping to the same range since July. With its 50-day and 100-day simple moving averages (SMA) now flat, Netflix’s shares are clearly in need of a new major catalyst to break out of its sideways trend.

Though to be fair to the bulls, Netflix’s shares had a remarkable year in 2020, registering an annual advance of 67.1 percent.

Are the best days over for Netflix’s growth?

The forward-looking nature of the markets mean that Netflix shareholders have already trained their sights on this year’s prospects and beyond. Some market estimates see Netflix boasting 300 million subscribers by 2024, but will have to first overcome near-term challenges.

Netflix is likely to post subdued year-on-year comparisons in 2021, given that the pandemic had front-loaded much of the company’s growth in the first half of 2020. It’s difficult to imagine Netflix repeating or beating such a feat during this current quarter and next.

For example, the streaming giant added 15.8 million subscribers in Q1 2020. According to the Bloomberg consensus estimates, Netflix is expected to add “only” 7.3 million more subscribers in the current quarter, which would be less than half of the total added in the first three months of 2020.

More price hikes to come?

Besides being tested on its ability to lure even more subscribers, Netflix will also be tested on its ability to retain existing customers. The streaming giant began a new price hike cycle in September, with the US seeing an 8-13% price hike in Q4, while prices in the UK and Ireland were raised in December. Subscribers in Germany had to start paying more last week. More price hikes are expected in other markets soon.

As long as Netflix can limit the subscriber churn amid these price hikes, that should bode well for its top line, with revenue set to come in at $6.6 billion in Q4 2020, which would mark an increase of over 20 percent compared to the same period in 2019.

Still, such prices hikes should raise the ARPU (average revenue per user) – which means Netflix is becoming more efficient in generating more income per subscriber – even as the top line revenue sees slowing year-on-year growth for a 5^th consecutive quarter.

What are Netflix’s plans for this year?

Amid the price hikes, Netflix has ambitious plans to keep its ever-demanding customers satiated.

The streaming giant is set to release 70 original films in 2021 (that’s more than one new title for every week), and that doesn’t include documentaries.

It remains to be seen how much this lineup of new titles can add to Netflix’s subscribers tally, given the tempting offerings by the likes of Disney+, HBO Max, Peacock and the like, all of whom are vying for a larger share of the streaming pie.

How do Netflix shares tend to react after earnings day?

Markets are already pricing in a 6.8 percent one-day move when Netflix shares resume trading after its earnings release. Also note that shareholders have seized the opportunity to book profits after the last four consecutive earnings announcements, while single-day declines have been registered in 8 out of the past 12 earnings announcements.

Netflix bulls are going to need an outsized positive surprise on Tuesday or a very bullish outlook from the company’s top brass that markets can buy into. Such rhetoric may put Netflix shares on a path towards breaking past the upper limits of its 7-month long-range and potentially set a new record high.

Written on 19/01/2021 08:30 GMT by Han Tan, Market Analyst at FXTM

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