Netflix Q4 Earnings: Is NFLX Expensive at 98.5x Forward P/E?

in EARNINGS/INVESTING IDEAS by

Netflix, Inc. (NASDAQGS:NFLX) is scheduled to report Q4 earnings results on January 21, 2020. The earnings call is scheduled for the same day at 3:00 PM PT.

The company is expected to report earnings of $0.51/share on revenue of $5.442 billion after markets close for trading. The consensus earnings per share (EPS) of $0.51/share is based on a poll of 35 analysts and represents a growth of 70.0% over the same quarter last year when the company reported earnings of $0.30/share.

The revenue forecast of $5.442 billion based on a poll of 34 analysts implies a year-over-year (YoY) growth of 30.0%. Last year the company reported $4.187 billion in revenue for the quarter.

Expected to report EPS growth of $0.21/share for Q4, 2019
Metric Expected Prior Year YoY Change
Revenue $5,442.00 $4,186.84 30.0%
EPS $0.51 $0.30 70.0%

In addition to the headline numbers, analysts will also be watching for positive trends in NFLX’s gross margins. The company’s management has historically been able to deliver improving gross margins in conjunction with rapid revenue growth as depicted below. Netflix’s massive subscriber base gives the company a competitive advantage in determining the type of content it needs to invest in continue to acquire and retain customers.


NASDAQGS:NFLX Fundamentals Chart

Source: Finbox

The company does face a high level of competition from formidable competitors like Disney and Apple that are now heavily investing in the video streaming market. The added competition suggests Netflix will continue to aggressively invest in original content, operate with negative cash from operations, and finance the cash shortfall by issuing debt. Netflix’s total debt has increased in each of the last three fiscal years from 3.364 billion in 2016 to 10.36 billion in 2018 and currently stands at approximately $13.5 billion.

Earnings Call Trends

Historically, management has exceeded analyst expectations 7 out of the last 8 tracked quarters, and met expectations 1 quarter.

What are your expectations from Netflix for earnings this quarter? Let us know in the comments!

Analyst Expected vs. Reported EPS
Quarter Expected Reported Surprise Result
Q3, 2019 $1.04 $1.47 41.3% Beat
Q2, 2019 $0.55 $0.60 9.1% Beat
Q1, 2019 $0.57 $0.76 33.3% Beat
Q4, 2018 $0.23 $0.30 30.4% Beat
Q3, 2018 $0.68 $0.89 30.9% Beat
Q2, 2018 $0.80 $0.85 6.9% Beat
Q1, 2018 $0.63 $0.64 1.6% Beat
Q4, 2017 $0.41 $0.41 0.0% Meet

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report. After the last earnings report for the period ending September 30, 2019, the stock price reacted by increasing by 3.2%.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
2019-10-16 $284.25 $293.35 3.2% Increase
2019-07-17 $365.99 $325.21 -11.1% Decline
2019-04-16 $348.87 $354.74 1.7% Increase
2019-01-17 $351.39 $339.10 -3.5% Decline

Fundamentals And Technical Analysis

Netflix is currently trading at $339.67/share, up 0.3% for the day. The company is trading at approximately 88.0% of its 52-week high of $385.99/share. The company’s stock price is up 15.8% since the last earnings report and up 0.2% over the previous week. The company’s 14 Day Relative Price Index (RSI) of 60.48 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.

NASDAQGS:NFLX Stock Price Chart Source: Finbox

The current share price implies a price-to-earnings (P/E) multiple of 105.3x and a forward P/E multiple of 98.5x.

Netflix’s current share price also implies a price-to-book (P/B) multiple of 21.7x. The following table summarizes some other key fundamental ratios:

Data as of January 20, 2020
Metric Value
Last Fiscal Period FY2019.Q3
Period End Date September 30, 2019
Stock Price (Current) $339.67
P/E Ratio 105.3x
P/E Ratio (Fwd) 98.5x
PEG Ratio 1.6
Total Debt to Capital (%) 8.3%
Levered Free Cash Flow -$2.876 billion
Enterprise Value / EBITDA 64.2x

Source: Finbox

Company Profile: Netflix, Inc.

Netflix, Inc. is a large-cap stock with a market capitalization of $148.9 billion and a total enterprise value of $158 billion. The company operates in the Communication Services sector and the Entertainment industry.

Netflix provides Internet entertainment services. The company operates in three segments: Domestic streaming, International streaming, and Domestic DVD. It offers TV series, documentaries, and feature films across various genres and languages. The company provides members the ability to receive streaming content through a host of Internet-connected screens, including TVs, digital video players, television set-top boxes, and mobile devices. It also provides DVDs-by-mail membership services. The company has approximately 139 million paid members in 190 countries.

Netflix, Inc. was founded in 1997 and is headquartered in Los Gatos, California.

Expertise: financial modeling, mergers & acquisitions. Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights: - Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores. - Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets. Andy can be reached at andy@finbox.io or at +1 (516) 778-6257.

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