Netflix Earnings Breakdown: Here’s Why Numbers Justify Premium Valuation
2025.01.22 13:14
Netflix (NASDAQ:) reported quarterly adjusted EPS of $4.27, which came in slightly higher than street estimates of $4.21.
Netflix results have come in better than expectations in 7 of the last 8 quarters, with the outlier being Q4 2023. These latest results came in +1.4% above street expectations, which was below the 8-quarter average of 6%.
Earnings grew 102% in the quarter, the second-best quarterly growth rate in the last 8 quarters. The average is clearly skewed by the outlier (1658%) growth rate in Q4 2023.
Sales came in at $10.25 billion for the quarter, which was also a beat against the street expectations of $10.11 billion.
Sales came in 1.3% above estimates, which was tied for the best surprise factor of the last 8 quarters, and well above the 8-quarter average of 0.4%. Netflix has beaten sales estimates for the last 6 quarters now.
Sales growth was a solid 16% for the quarter, which is well above the 8-quarter average of 11%.
Total paid subscribers globally surpassed the 300 million mark…
This represents a net gain of 18.9 million subscribers for the quarter (a record), or 16% growth in net paid subscribers. This was the last quarter the company will be reporting subscriber numbers.
The stock really got hit hard during the 2022 bear market, as most high-growth stocks typically do. But proceeded to rally almost 500% off the bear market lows, far surpassing the prior highs. This is what separates the good companies from the bad. Every company’s stock price will get hit during a bear market, even the run best companies in the world. But the good companies will survive and rebound. While bad companies will often get buried and never recover.
The stock price pulled back in December and found support around $825. Which is the midpoint from the 2022 highs to the recent high at $941.
Selfishly I was rooting for a gap down in the $800 area to add to the position. But obviously that is not the case, as the stock opened up about 12% higher after earnings, almost touching the $1000 mark. I wouldn’t be surprised to see a retest of the December highs first though.
Currently, the market expects earnings growth of 24%, and sales growth of 13% over the next 4 quarters. Both are double the market average. But based on today’s gap up to record highs, the forward PE is 40x, which makes the PE to growth ratio (PEG) now 1.7. Which isn’t absurd by any means, but it does mean a lot of good news is already priced in.
In the end, Netflix is so far ahead of the competition that it deserves a premium price. Sales growth appears poised to continue in the mid-teens for the foreseeable future, while earnings and cash flow continue at a pace that every other streamer only wishes it could.
