US Stock Earnings Preview: With "Squid Game" Returning, Will Netflix See Explosive Growth in Q4 Earnings?
Netflix is set to release the fourth-quarter financial report for the fiscal year 2025 after the market closes this Tuesday.
As one of the leaders in the streaming media industry, Netflix has proven that it has established a remarkable business model.
Since the third quarter of 2023, the company's global user base has maintained a year-on-year growth of over 10%. Millions of new users are added each quarter. The number of user growth is one of the key highlights of Netflix's quarterly financial reports. If this growth can be sustained, Netflix's valuation could be further increased significantly.
Netflix's quarterly revenue is also growing significantly.The revenue growth provides Netflix with more substantial financial support in content creation. This means that Netflix can invest more resources in developing new original TV series, movies, documentaries, etc.
In addition to continuing to create hit works such as "Squid Game" and "Stranger Things", it can also explore more diverse themes to meet the needs of users in different regions and age groups. This will further strengthen its content advantage in the global streaming media market, attracting and retaining more users.
Moreover, with the increase in the number of users, the revenue will continue to rise, creating a very positive feedback loop.
It is worth noting that this will be the last time Netflix announces the net subscription user data. In terms of pricing strategy, analysts generally expect the company to introduce a new round of price increases in 2025.
Currently, the price of Netflix's standard package is $15.49 per month, the high-end package is $22.99 per month, and the basic package with ads remains at a relatively low level of $6.99 per month.
This quarter, thanks to the NFL games, the Jake Paul vs. Mike Tyson boxing match, and the return of "Squid Game", everyone anticipates that Netflix will present an outstanding performance.
According to the consensus forecast of Bloomberg, Netflix is expected to achieve revenue of $101.1 billion, earnings per share of $4.18, and 9.18 million new subscription users. This is a quite promising prediction.
At the same time, Netflix itself has stated that the number of new paid users in Q4 is expected to be higher than in Q3. As for the exact margin, we'll have to wait and see.
Of course, not every program broadcast by Netflix will be as popular as "Squid Game" or the new season of "Stranger Things", but that doesn't matter.
In my opinion, what matters is how Netflix markets shows that have become key IPs. For example, for "Stranger Things" and "Squid Game", it can build offline theme parks, sell IP-related derivatives, and grant some commercial licenses to other companies. The emergence of a new IP often brings huge economic benefits.
Meanwhile, in the third-quarter shareholder letter, Netflix stated that it has made progress in its advertising plan, but it is still in the early stages.
It will likely take some time for it to become more relevant and a major driver of growth. So, in my view, the personalized trend in the advertising industry could also be one of the future growth paths.
However, Netflix's current stock price has reached $860 in the US stock market. Most analysts in the market believe that Netflix is currently overvalued.
After carefully reviewing Netflix's financial reports from the past few years, I think that even with a 15% quarterly earnings growth rate, it's hardly sufficient to support the current high stock price.
So I think that after the financial report is released, Netflix is likely to experience a decline, because the current stock price of Netflix has already to some extent over-anticipated the positive impact of the fourth-quarter financial report.
And the room for Netflix's stock price to continue rising is rather limited. It's likely to reach around $900. However, the downward potential is quite large. I think around $670 might be a good buying point.