Netflix Pre-earnings Analysis
Netflix investors have been rewarded over the past twelve months as the stock has doubled and nearly reached the $1,000 milestone. From hosting professional boxing matches to live comedy shows, the company has expanded its reach to new heights. However, with earnings quickly approaching, many are wondering whether Netflix can deliver strong enough results to sustain its stock valuation.
Once an essential part of the “FAANG” stocks—comprising Amazon, Apple, Google, and Meta (formerly Facebook)—Netflix has been excluded from the group as the rise of artificial intelligence and other new technologies gave way to the “Magnificent 7” stocks. Despite this, Netflix’s performance remains strong, suggesting it still holds a significant position in the market.
In 2024, Netflix increased its revenue at an average rate of 15% per quarter and is expected to maintain this momentum with its Q4 earnings later this week. Even more impressively, its net income rose by 79%, 44%, and 41% in the first three quarters of 2024, respectively, making it one of the company’s most profitable years to date. However, despite its ability to grow earnings, Netflix is currently trading at a price-to-earnings (P/E) ratio of 48x, far above the favorable range of 15–25. This suggests that markets will focus less on Netflix’s past achievements and more on its forward-looking projections. To maintain investor interest, Netflix must reinforce its strong 2025 guidance or potentially even raise it. This is likely the only way to justify its high P/E ratio without a decline in stock price.
Netflix’s lack of substantial free cash flow makes it unlikely to introduce a dividend anytime soon, and its current stock price is becoming increasingly inaccessible for many investors. Announcing a stock split could provide a boost, possibly pushing the stock above the $1,000 mark. Without a split or strong earnings results, it may be challenging for Netflix to sustain its current highs.
Option Chain Analysis:
Netflix’s option chain currently reflects approximately 113% implied volatility for this week’s contracts, indicating an expected move of around (+/-) $73. However, the direction of the move remains uncertain. This means that if Netflix fails to meet the expected price movement, many out-of-the-money (OTM) contracts could lose all their value. We’ve identified key resistance and support levels where NFLX may move following the earnings report.