Netflix has indicated it could add about 4.5 million subscribers in the quarter, compared to 2.41 million subscribers in the prior quarter. However, this would still represent a drop from the 8.3 million subscribers the company added in Q4 2021. The growth is likely driven by an improving content listing and the recent launch of the company’s ad-supported tier called “Basic with Ads,” which went live in early November. The plan costs $7 per month, $3 less than the current base plan. The more affordable plan should help Netflix at a time when discretionary spending is shrinking while facing competition from the likes of Apple
While Q4 is typically the company’s weakest quarter in terms of operating margins due to higher marketing and content spending, things are expected to be worse this time around, with Netflix margins only about 4% versus 8% over the same period a year ago. This is likely due to the launch of the new ad-supported level and mounting currency headwinds with the US Dollar Index up more than 7% over the past year. The exchange rate tends to have a more pronounced impact on Netflix’s margins compared to revenue, as the company’s cost base is largely dollar-denominated and about 60% of its revenue comes from abroad.
We were bullish on Netflix stock as it plunged to a five-year low in mid-2022. However, the stock has since recovered significantly, rising more than 60% in the past six months. At its current market price of about $315 per share, Netflix is trading at about 30x future earnings, which isn’t very attractive given the many headwinds, including the potential recession in the US and concerns about the effectiveness of Netflix-backed subscriptions. A few weeks ago, Digiday – an online trade magazine – reported that the streaming giant was refunding money from advertisers for ads that had not yet been shown, indicating that there were instances where Netflix only delivered about 80% of its expected audience to advertisers. We currently remain neutral on Netflix stock, with an estimated price of $322 per share, which is roughly in line with the current market price. See our analysis Netflix rating: Expensive or cheap for more information on what determines our price estimate for Netflix. Also view the analysis of Netflix earnings for more information on how Netflix’s revenues are developing.
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