Netflix's Upcoming Earnings Call: Key Insights for Investors

Netflix (NFLX) has seen its stock value triple from 2023 to the end of 2024. As the streaming service is preparing to report its fourth-quarter earnings on January 21, investors will be eager to learn how the company wrapped up the year, its content spending plans for 2025, and whether there will be any price hikes this coming year.

This article explores why Netflix remains a top contender in the streaming market and what factors might influence its stock's future.

The Evolution of Netflix

Netflix has changed significantly over the years. The company once faced challenges with its content spending, experiencing difficulties with low-quality productions. However, Netflix has shifted its strategy to focus more on quality content over sheer volume. Despite producing a mixture of hits and flops, it has found success with various popular shows and movies, solidifying its position in the competitive streaming landscape.

One key measure of Netflix's performance is screen time. Current data indicates that streaming accounts for a dominant portion of television viewing in the U.S., with Netflix holding 8.4% of daily screen time. Following closely is Alphabet's YouTube, which claims 9.9%. These two services together represent a large share of time spent watching streaming platforms.

Recent reports from Netflix state that each subscriber averages two hours of viewing time per day. This impressive engagement is attributed to its mix of original content, licensed shows, and additional features like gaming and live events. These offerings stand out compared to other services which struggle with pricing and content quality.

What to Expect in Q4

Netflix anticipates $10.13 billion in revenue for the fourth quarter, potentially marking its highest revenue quarter to date with a growth rate of 14.7% compared to the same period last year. Although a slight decline to 21.6% in operating margins is expected, this decrease is typical for Netflix's Q4 due to seasonality factors. When compared to figures from Q4 2023, a significant increase in operating income is also forecasted.

As Netflix gears up for its earnings report, investors will be particularly interested in the viewership statistics for its holiday content lineup, including anticipated hits like Squid Game Season 2 and Outer Banks Season 4. How well these shows perform could impact the company's growth outlook for 2025.

Potential for a Price Increase

In 2023, Netflix streamlined its offerings by eliminating its Basic Plan and introducing a Standard Plan with Ads priced at $6.99 per month. Meanwhile, the Standard and Premium plans have remained at $15.49 and $22.99 respectively. Given the trends, it seems likely that a price increase for the Standard plan could be on the horizon for 2025.

Investors should pay attention to management’s discussions regarding potential price adjustments during the earnings call. Leadership has indicated that future price increases might be justifiable if Netflix continues to deliver high-quality programming appealing to a wide audience.

Valuation Insights

With its recent focus on substantial earnings growth instead of just sales increases, Netflix's price-to-earnings (P/E) ratio has become a crucial metric for investors. Currently, Netflix has a P/E ratio of 49, and a forward P/E ratio of 36, which contrasts with lower forward P/E ratios of competitors like Meta Platforms at 24 and Alphabet at 22.

This positioning implies that Netflix deserves a premium valuation, but the extent of that premium is subject to debate. If the company can maintain its market share in a growing streaming industry, its valuation may become more justified. However, its high stock price can be a concern for new investors.

In this regard, risk-tolerant investors may consider initiating a position in Netflix, while others might prefer to keep it on their watchlist until a more favorable valuation appears. A potential price increase in the near future could further accelerate the company's earnings growth.

The Importance of the Upcoming Earnings Call

Netflix’s upcoming earnings announcement is crucial. It will reveal whether the company’s fourth-quarter content lineup lived up to expectations and if it can sustain growth into 2025. While Netflix as a company has proven its worth, its stock performance needs to justify its premium valuation.

Netflix, Investors, Streaming