Strong Netflix earnings prove why Wall Street analysts love the stock


Top line

Netflix posted strong third-quarter results on Tuesday, with subscriber growth and earnings exceeding expectations thanks to a substantial boost in popular new content as the streaming giant seeks to assert its lead over rival platforms .

Highlights

While Netflix’s quarterly revenue of $ 7.84 billion was broadly in line with the company’s forecast, earnings per share of $ 3.19 were well above the expected $ 2.56 per share.

Following the earnings report, Netflix shares, which had traded largely flat during the day, jumped 0.6% after-hours.

After a mixed start to the year, Netflix exceeded investor expectations by increasing the total number of subscribers from 209 million in the last quarter to 213.6 million.

Overall, Netflix maintains a large lead over other major US streaming competitors like Disney +, which last recorded 116 million subscribers, and HBO Max (owned by parent company AT&T), with 67.5 million subscribers.

Wall Street analysts, most of whom remain bullish on Netflix, widely predicted that the global success of South Korean drama “Squid Game,” which launched in the third quarter, would provide a substantial boost to Netflix’s bottom line until the end. of the year.

Netflix said earlier this year that it plans to spend $ 17 billion on content, a notable increase from the $ 11.8 billion spent in 2020 and $ 13.9 billion spent in 2019.

A growing share of that spending will go to original content, which should help Netflix “return to strong growth despite difficult short-term lineups” and drive fourth-quarter subscriber growth, according to a note from Bank of America.

Crucial quotes

Earlier Tuesday, Credit Suisse analyst Douglas Mitchelson called a third-quarter profit breach “on the table” for the streaming giant. Baird Will Power analyst, meanwhile, said that “while ‘Squid Game’ is any indicator, content is still king.”

Big figure: $ 900 million.

That’s what Netflix’s “Squid Game” series should be worth, after costing just $ 21.4 million to produce, according to a Bloomberg report.

Tangent

CEO Reed Hastings, who revolutionized the entertainment world after co-founding Netflix in 1995, is worth $ 6 billion, according to Forbes‘estimates. His net worth has nearly doubled over the past two years, as Netflix’s continued growth and an increase in enrollments during the pandemic bolstered the company’s advantage in the streaming wars.

Key context

After a slow start to subscriber growth in 2021 – stocks also only rose 1% in the first half of the year, expectations for third quarter earnings were still going to be high. The stock has traded well in recent months, however, rising some 20% so far in the third quarter. While some pundits anticipated a recovery in the second half of the year thanks to the return of popular shows and new original content like “Squid Game”, it happened faster than expected, as evidenced by the title’s recent uptrend, JPMorgan analyst Doug Anmuth said in a recent memo.

Further reading:

Disney Stock slips more than 3% as analysts warn of slowing subscribers (Forbes)

About Shelley Hales

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