Currently trading over $700, Netflix (NFLX) shares have displayed a remarkable rally of more than +40% year to date, with a staggering +150% gain over the past five years.
Despite its hefty price tag, Netflix stock holds a Zacks Rank #2 (Buy) as the streaming giant gears up to unveil its third-quarter results on Thursday, October 17.
Here’s a closer look at why investing in Netflix remains a promising venture in the current market landscape.
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Optimistic Outlook on Subscriber Growth
One of the primary drivers behind the robust performance of NFLX has been its impressive subscriber growth. Forecasts indicate that Netflix may have added 4.75 million subscribers during Q3, following an astounding addition of 8.76 million subscriptions in the same quarter last year, surpassing expectations by 2.9 million. Notably, Netflix recorded an addition of 8.04 million subscriptions in Q2, surpassing expectations by 2.24 million.
With an expanding portfolio of original shows and content, Netflix has solidified its position as a leader in the streaming services domain, boasting over 277 million users by the end of Q2, outperforming the combined subscribers of Disney’s main platforms (Disney+, Hulu, and ESPN). This figure also outstripped the subscription numbers of Paramount Global and Warner Bros. Discovery by a significant margin.
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Anticipated Financial Growth in Q3
Backed by its robust subscriber base, Netflix is poised to exhibit double-digit growth in both top and bottom lines for fiscal years 2024 and 2025. Sales for Q3 are expected to climb 14% to $9.77 billion, compared to $8.54 billion in the corresponding period last year.
Furthermore, Q3 earnings are projected to surge by 36% to $5.09 per share, a significant increase from the $3.73 EPS reported in the same quarter previously. Impressively, Netflix has surpassed the Zacks EPS Consensus in three out of its last four quarterly reports, boasting an average earnings surprise of 6.15%.
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Valuation Analysis of Netflix
Despite the perception of a high stock price, Netflix’s valuation appears more reasonable than ever before. The company’s forward earnings multiple stands at 37.3X, significantly below its five-year peak of 100.6X and slightly under the median of 37.9X during this timeframe.
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Key Takeaways
The remarkable rally of NFLX year to date is poised to persist if Netflix manages to meet or surpass earnings projections and continue its trend of robust subscriber growth. Considering Netflix’s dominant market position, any potential post-earnings decline could present attractive buying opportunities, given the company’s long-term growth prospects and the stabilization of its valuation.
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Netflix, Inc. (NFLX) : Free Stock Analysis Report
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