It's showtime at Netflix (NFLX -1.38%). The world's leading premium streaming service reports fresh financials shortly after the closing bell on Thursday, and there's always a lot riding on the fresh quarterly results.
Netflix set viewership records with Squid Game during the fourth quarter. It also set new high-water marks with its movies, with Red Notice in November and Don't Look Up in December ranking as its most-watched films -- within the first 28 days of release -- of all time. We know that the Netflix audience was engaged, but did it grow materially? Will Netflix hit the guidance it established three months ago? Let's take a closer look.
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Netflix vs. Wall Street vs. reality
At the time of its last financial update, Netflix was forecasting 222.06 million streaming paid memberships by the end of 2021. We're talking about a 9% year-over-year increase. This would also be a decent 8.5 million more premium accounts than it had on its books at the end of the third quarter, essentially matching the 8.51 million in net additions it scored in the fourth quarter of 2020.
Revenue is expected to grow faster than its audience, largely the handiwork of price increases in select regions over the past year. Its forecast calls for revenue to climb 16% to $7.712 billion. It's another story on the bottom line, as the deluge of big-budget releases during the quarter weighed in its margins in the form of content amortization. The $0.80 a share profit it's eyeing for the quarter is well below the $1.19 a share it earned a year earlier.
Two important things to keep in mind in taking in the official Netflix forecast is the timeliness and the recent iffy nature of its crystal ball. The guidance was issued on Oct. 19, less than three weeks into the new quarter. A lot likely happened between then and the end of December. As for the quality of the forecast, Netflix used to routinely exceed expectations, but it's fallen short on some fronts a couple of times over the past two years.
Investors can naturally turn to Wall Street pros for a more updated but far from official take, but it doesn't stray too far from the source that is now three months old. The consensus estimate calls for Netflix to earn $0.82 a share on $7.71 billion in revenue, roughly in line with the initial forecast.
Reality will chime in next, and that will be the ultimate scorecard. The good news -- from the glass half-full camp -- is that the stock has fallen considerably since its last report. Unlike many of the 2020 darlings that peaked early in 2021, Netflix was hitting all-time highs when it briefly cracked the $700 ceiling in mid-November. It has shed more than a quarter of its peak value heading into Thursday afternoon's report. This isn't encouraging in terms of momentum, but it may make the market forgiving if Netflix delivers anything short of a blowout report.
There's also the surprise pricing increase for U.S. members that Netflix rolled out late last week. The timing is interesting, and it remains to be seen if Netflix had such a strong quarter that it felt it had the content ammo to boost its monthly rates or if it was bracing for a rough quarter on the operating margin front and wanted to provide a silver lining to investors.
There's never a dull moment for the bellwether of streaming service stocks. Buckle up for a quarterly update that will likely move the stock significantly higher or lower on Friday.
