Netflix (NASDAQ:NFLX) is scheduled to announce Q1 earnings results after market closes on Tuesday, April 19.
Latest Results
In Q4 2021, Netflix added 8.28 million net new subscribers, a bit shy of the company's own forecast for 8.5 million net adds, and about in line with the Wall Street consensus forecast at 8.3 million. The company now has 221.8 million subscribers globally.
The company generated Q4 revenue of $7.7 billion, up 16%, and in line with the company's projection at $7.7 billion. Profits were $1.33 cents a share, well ahead of analysts at 83 cents, with the outperformance mostly due to an unrealized gain tied to the company's euro denominated debt.
Q1 Guidance
Netflix's projections for Q1 2022 were even lighter. The management's guidance is projecting 2.5 million net adds. While analysts on average predict 2.81 million in Q1, and 2.64 million in Q2, according to FactSet.
It sees Q1 revenue of $7.9 billion, up 10.3%, but well shy of the Street consensus at $8.2 billion.
3 Most Important Things to Watch
1. Subscriber additions
As always, an important focus for investors will be Netflix's net paid subscriber additions. In Q3, Netflix saw a re-acceleration in its quarterly subscriber growth, as net additions came in at 8.3 million. Though this was notably below the 8.5 million net new subscribers the company had estimated it would add during the quarter, it was still good to see a significant sequential uptick from the 4.4 million members the company added in the prior quarter.
But what likely spooked investors was management's guidance for just 2.5 million net new paid subscribers inQ1 2022. This would be down significantly from the 4.0 million the company added inQ1 2021. This weak outlook, management explained, reflects the quarter's back-end weighted content slate.
2. Commentary on competition
Another red flag for Netflix investors in Q4 was management's nod to increasing competition. In a rare acknowledgment of competition having a negative impact on the company, management said, "added competition may be affecting our marginal growth some..."
Investors should look to see if management doubles down on this worrisome narrative or if it brings positive data points to the table regarding how it is faring in a competitive environment. Chances are, the worrisome remarks about competition will continue. But investors should note that the stock's big decline has arguably priced in expectations for heated competition going forward.
3. Subscriber-growth guidance
Of course, another key metric to watch will be the company's guidance for subscriber growth inQ2 2022. Technically, a back-weighted content slate in Q1 should positively impact Q2. Further, it's no secret that content production has been ramping back up from periods when much of the world was facing lockdowns. So lots of new content from Netflix should provide a catalyst for reaccelerated subscriber growth, assuming increasing competition isn't providing too much negative pressure.
While it's always tough to estimate how many subscribers Netflix will guide for, it would be nice to see guidance for second-quarter subscriber levels on par with pre-COVID levels again. To do this, the company would need to guide for around 2.7 million new subscribers in Q2.
Analyst Opinions
Truist analyst Matthew Thornton cut the price target of Netflix to $409 from $470.Thornton said in a research note that based on mobile app downloads, he believes the company's subscriber numbers in the first quarter will top expectations but thatQ2 outlook will come in below estimates, with consensus paid member adds being a "slightly high hurdle," based on prior reports.
Stifel analyst Scott Devittmaintained a“Buy” rating and a $460 price target on Netflix’s shares. Devitt noted the loss of subscribers in Russia and ongoing disruption in EMEA may limit the upside to subscriber growth. And looking past the first quarter, Devitt is tempering his estimates for 2022 and beyond as he takes a more conservative approach to the subscriber and ARPU growth on worsening macro conditions and continued uncertainty.
JPMorgan analyst Doug Anmuth issued an “Overweight” rating and a $605 price target on Netflix’s shares. Anmuth was continuing to believe Netflix has meaningful room for further global subscriber penetration. And Anmuth believed Netflix is currently 29% penetrated among the approximately 776 million global broadband subscribers, 33% penetrated among the approximately 675 million current global pay-TV subscribers, and 31% penetrated among the approximately 712 million maximum global pay-TV subscribers.