With the Netflix [NFLX] share price having more than doubled from last year’s low, the streaming service is likely to attract a wide audience when it announces its Q4 results on Thursday.
However, amid warnings that the number of new subscribers may fall short of the company’s projections, could the shares be heading for a period of volatility?
Netflix stock’s rollercoaster ride
The stock soared to a record, pandemic-fuelled high of just over $700 in November 2021 as lockdowns sent housebound viewers flocking to the video platform. For example, in the first three months of 2020, when Covid-19 first forced countries around the world to impose stay-at-home orders, almost 16 million people created Netflix accounts, according to the company.
However, the shares sank to an almost five-year low of $162.71 during intraday trading on 12 May last year as viewers ditched the platform. Netflix lost 200,000 subscribers in the first three months of 2022 – the first decline since 2011 – and shed a further 970,000 subscribers in the second quarter of the year.
Recently, though, the stock has risen back to pre-pandemic levels. Since last May’s low the stock has increased 104.5%, closing at $332.82 on Friday. A key factor behind the share price rebound has been the user base’s return to growth. In Q3 the company netted 2.41 million new subscribers, beating management’s forecast of 1 million, partly thanks to the success of the fourth series of hit show Stranger Things. The new users lifted the global subscriber base to around 223 million.
Could the stock be poised to make further gains? Potentially. “The last few months have been positive ones for the Netflix share price, which has been trending steadily higher since May,” affirms Michael Hewson, our chief market analyst. Referring to the chart below, Hewson comments that “we have strong trend line support from the July lows, with a move through the December peaks potentially opening a move towards $360”. Much could hinge on Thursday’s Q4 earnings announcement.
Netflix price chart, March 2022 – present
Analysts foresee possible challenges
Netflix may have added fewer new subscribers than expected in Q4, according to Barclays analyst Kannan Venkateshwara, as reported by MarketWatch. Netflix is “on a path” to add 2.7 million subscribers, significantly fewer than company forecasts of 4.5 million, said Venkateshwara. Netflix faces stiff competition from rival streaming services operated by Amazon [AMZN], Disney [DIS] and Apple [AAPL], to name but a few. At the same time, many consumers are rethinking their streaming subscriptions amid cost-of-living pressures.
If Venkateshwara’s estimate proves accurate, and if the launch of an ad-supported membership tier in November drew customers away from Netflix’s pricier membership plans, investor confidence in the shares might take a knock. That could weigh on the shares’ value.
Starting with the upcoming Q4 announcement, Netflix will stop providing guidance for its paid memberships – a data point that has exerted a significant influence on the share price’s movement in recent years – but will continue to report these figures during its quarterly earnings release.
While the subscriber figures have the potential to move the dial, investors will, of course, also pay close attention to revenue and earnings. Based on estimates compiled by Zacks Investment Research, Netflix is expected to report Q4 revenue of $7.84bn, up 1.67% year-on-year, while earnings are thought to have fallen to $0.45 a share, down from $1.33 a year ago.
Estimates collated by the Financial Times point to a possible share price correction, though most analysts rated the shares a ‘hold’ or better. Among 43 analysts polled by the newspaper in January, 11 analysts gave the shares a ‘buy’ rating, 10 expected them to ‘outperform’, 19 rated the stock a ‘hold’, and three expected them to ‘underperform’. Among the 36 analysts offering a 12-month price target for Netflix, the median estimate of $320 represents a 3.85% decrease versus Friday’s closing price of $332.82.
Although the shares have recovered from last year’s lows, it could be a mistake to assume that they will continue their ascent unabated. Then again, stranger things have happened. What seems clear is that subscriber numbers will once again play a crucial role in determining where the shares are heading. Netflix will release its Q4 results after US markets close on Thursday 19 January.
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