Netflix Earnings Review: Still Winning the Streaming Wars?

Netflix (NFLX) stock is making new record highs today on the back of a strong quarterly earnings report. Earnings per share of $5.40 beat estimates of $5.12 and revenue of $9.83 billion beat estimates of $9.77 billion. Most notably, Netflix added 5.07 million subscribers last quarter, well above the forecast of 4 million.

When it comes to streaming services, Netflix and Amazon’s (AMZN) Prime Video are neck and neck for the top spot, each commanding a 22% share of the market. However, the business models have very different dynamics. Amazon’s Prime Video is part of a broader business ecosystem, while Netflix is a standalone business. Nonetheless, Netflix has evolved into an extremely profitable business today, and as we will see it has strong earnings growth forecasts and a reasonable valuation.

Netflix stock is up nearly 10% on the day and has put up a commendable performance year-to-date, more than doubling that of the broad market. The company also boasts a Zacks Rank #2 (Buy) rating, indicating upward trending earnings revisions.

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Netflix Projects Strong Growth Expanding Content Offerings

In Q3 2024, Netflix saw revenue grow 15% year-over-year, with its operating margin expanding to 30%, up from 22% a year ago. The company expects to maintain strong momentum, forecasting 15% revenue growth and a 27% operating margin for the full year. Netflix delivered popular new content noted by robust engagement levels, with viewing hours per member rising.

The advertising segment showed significant growth, with a 35% quarter-on-quarter increase in ad memberships and plans to expand its ad tech platform in Canada and beyond. Looking ahead, Netflix aims to sustain its growth trajectory by expanding its content offerings beyond traditional series and films to include live events, such as NFL games during the holiday season and high-profile boxing matches like the Jake Paul/Mike Tyson fight.

Over the next three to five years, analysts forecast earnings to grow 26.4% annually.

Streaming Wars: NFLX, AMZN or DIS?

The streaming wars continue to intensify, with major players like Netflix, Disney (DIS), and Amazon Prime Video fiercely competing for subscribers' attention. Netflix, as the longest-standing leader in the space, has faced increasing challenges from newer entrants that are leveraging their vast content libraries and brand power. Disney+, for instance, has rapidly grown its subscriber base since launching in late 2019, riding on the strength of its beloved franchises like Marvel, Star Wars, and Pixar. The service’s ability to bundle Disney+, Hulu, and ESPN has made it a compelling choice many.

Amazon Prime Video, while primarily a part of the broader Amazon Prime membership, has also made a strong push in original content and live events. Its investment in epic shows like The Lord of the Rings: The Rings of Power, along with exclusive sports content like Thursday Night Football, positions it as a serious contender. For Netflix, the competition has meant evolving its strategy to include not just traditional series and films, but also live events, such as the upcoming NFL games and boxing matches, in an effort to diversify its content and attract a broader audience.

However, Netflix continues to maintain its leadership position in the streaming industry, boasting around 280 million global subscribers, ahead of Amazon Prime Video's 200 million and Disney’s 150 million. Moreover, Netflix's profitability stands out compared to its competitors, as it is currently generating substantial operating profits.

Netflix Valuation 

Netflix is trading at a one year forward earnings multiple of 36x, which is below its 10-year median of 37.8x. It is hard to imagine but in 2022, the stock was trading as low as 15.3x. Nonetheless, the current valuation while higher than the broad market average is not absurd for a market leader growing at the pace Netflix is today.

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Should Investors Buy Netflix Shares?

Netflix's latest earnings report reaffirms its position as a leader in the streaming industry, demonstrating impressive growth and profitability amidst a competitive landscape. The company’s addition of 5.07 million subscribers last quarter, well above expectations, indicates strong demand for its content.

As the streaming wars rage on, Netflix's strategic shift towards live content signals a broader ambition to capture new audiences. While Disney+ and Amazon Prime Video continue to be formidable competitors, each with unique strengths, Netflix's distinct advantage lies in its brand, profitability and subscriber leadership.

While the valuation today is above the market average and by no measure is cheap it is supported by an innovative management team with a considerable growth runway ahead. And with the bull market in stocks charging forward, investors looking for a discount may have to be very patient for the next bear market. Thus, for those looking to add exposure to technology and streaming stocks, it may not be a bad time to buy Netflix stock.

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