Netflix Earnings Preview: Fiscal Q3 2024

Q3 2024 expectations: Revenues are expected to be supported by continued paid-sharing, growth of the ads business, and further monetization. After the disappointment in Q2 2024, questions remain around the investments in the ad tier, increased competition, and its impact on paid sharing.

According to Visible Alpha consensus, the 28% margin is expected to be driven by total revenues of $9.8 billion and operating income of $2.7 billion in Q3 2024. These estimates have not changed much since last quarter. These projections are driven by consistent expectations for U.S. streaming and an uptick in ad-supported revenue. It is worth highlighting that since the July quarter, ad-supported revenue has moved back up to $549 million, but is still lower than the initial expectation at the beginning of FY 2024.

While there does not appear to be a meaningful shift in overall top-line and operating profit expectations from the July quarter, earnings estimates have moved up from $5.05/share to now $5.12/share.

The stock has traded up around 13% to $727 since last quarter’s release, driven by the resilience in the company’s net adds. Will the outlook for the rest of 2024 support the upward trajectory of Netflix’s stock price?

Q4 2024 expectations: Currently, the Q4 2024 revenue is expected to be $10 billion. Revenues are expected to be supported by price increases, growth of the ads business, and further monetization. Operating margin is expected to be 21%, a year-over-year improvement of 400 bps.

FY 2024 expectations: The company expects to grow revenues by increasing engagement trends and reducing churn with a more diverse entertainment offering. Gaming and the growth of ads could be key drivers in H2 2024. According to consensus, analysts expect the company to generate a 26% margin from revenue of $38.7 billion and $10 billion in operating profit in FY 2024, which has not changed much since April 2024 and is in line with Netflix’s guidance.

Figure 1: Netflix: Consensus Expectations for Q3, Past Earnings Surprises, Revisions, and CAGR