Can NFLX Keep Climbing?

Ready, set, stream: Netflix is set to release its second quarter earnings after the market closes today, kicking off the next wave of tech-heavy focused earnings. Analysts anticipate strong results, with earnings per share (EPS) expected to be roughly $7.08, marking a 45% year-over-year improvement. Revenue is expected to climb more modestly from last year, but still anticipated to signal about 16% growth. Top-line is projected at roughly $11.07B, according to estimates from Zacks. 

The streaming company's performance is expected to be driven by factors like price increases, the growth of its ad-supported tier, and expansion into international markets. Namely, the growth and profitability of the ad business will remain a key area of focus, due to the high-margin nature of that business. 

Plus, Netflix is pushing into under-developed markets to continue to maintain its healthy growth. But important to keep in mind, Netflix no longer publicly reports its subscriber numbers. Therefore, analysts will be looking for insights into the impact of price increases and the performance of the ad-supported tier on overall subscriber trends. The last year’s subscriber growth in the U.S. and Canada has been tempered as we’ve witnessed other regions continue to grow in the mid-teens to low 20%.

A MoffettNathanson analyst noted this week that Netflix has moved away from an exclusive ad relationship with Microsoft (MSFT) to third-party platforms like The Trade Desk (TTD), which he says allows them to “monetize their inventory in a completely different way.” He is also bullish on its expansion into live events and sports.

Perhaps the streaming giant’s biggest snag ahead of earnings? Over the next 3 years, the consensus estimates expect an average 23% EPS growth, on 13% revenue for Netflix, while the stock is currently trading at an average P/E for the next 3 years of 41x. Netflix’s run this year has stretched its valuation considerably, with shares jumping roughly 39% this year (through Wednesday’s close) and gaining over 90% on a twelve-month basis. 

The options market is implying a +/- $70 move, or around 6%. Shares are getting expensive for retail investors, currently around $1,250.