When Netflix reports its second quarter on Thursday afternoon, the Ginny & Georgia streamer will look to keep up a hot streak that began at the end of 2023. Wall Street analysts are expecting earnings per share of $7.08, up from $4.88 last year, and revenue of $11.1 billion, up 16%.
After its sales growth slowed in 2022, Netflix pulled two levers to turn things around. It cracked down on password-sharing and began offering a less expensive ad-supported tier.
The initiatives were successful, and now Netflix has notched six quarters in a row with double-digit revenue growth. The stock price has reflected that, up 129% since Netflix reported the first of those quarters in January 2024. The S&P 500 index was up 28% in the same period.
This run has stretched the stock’s valuation, trading at 44 times expected earnings for the next 12 months, close to its three-year high. Other valuation metrics are similarly inflated. To keep the rally going, Netflix can’t show any weakness in the second quarter, or in its guidance for the third quarter, when analysts expect earnings per share of $6.69 on $11.3 billion in revenue.
For Netflix to keep up, the ad tier will have to continue its rapid growth. According to Melissa Otto, the head of visible alpha research at S&P Global, it saw $1.9 billion in 2024 sales and is expected to get $3.9 billion this year, making it an important driver for the whole company.
Ads may also be more profitable than subscriptions. The company’s operating profit margin has been growing, last seen at 32% in the first quarter, and the streamer projected 33% for this quarter.
“Netflix has built a formidable entertainment platform and is in the early stages of developing a promising digital advertising franchise,” said analyst Brian White of Monness, Crespi, Hardt in a note to clients. “We expect Netflix to enjoy continued momentum on the digital advertising front, benefit from higher monthly subscription prices, and release a steady flow of new content.”
Netflix has survived an onslaught of new competition in the past few years from Disney, Amazon, Apple and more. According to Nielsen’s June U.S. viewing data, Netflix easily tops all but Alphabet’s YouTube, whose viewing share has increased from 9.9% a year ago to 12.8% in June, with Netflix trailing with 8.3%. The next closest is the combination of Disney’s three streaming services at a 4.8% share.
Increasingly, Netflix squares off with YouTube while the rest compete with each other. The wild card is TikTok, which may become a larger part of the picture down the road.
Netflix gets a majority of its revenue from abroad, so the weak dollar in the second quarter could be a tailwind.