Should Investors Buy Netflix Stock Before Q4 2024 Earnings?

TradingKey - Streaming content to watch, whether from your TV, smartphone or laptop, has taken off over the past decade. And there’s no bigger player in the streaming space than Netflix Inc (NASDAQ: NFLX). 

Indeed, investors were reminded of that fact recently given the astounding numbers that turned into season 2 of viral Korean hit series Squid Game when it debuted on 26 December 2024. 

The Korean show’s second season racked up 68 million views in its first week, blowing away the previous record of 50.1 million views that was set by the show Wednesday in 2022.

Shareholders and the market alike will be hoping for similarly big numbers when Netflix reports its Q4 2024 earnings on Tuesday (21 January) after the market closes. But should investors be gearing up to buy Netflix shares ahead of its quarterly earnings announcement?  

Netflix subscriber growth expected to be 8 million

While Netflix has consistently told analysts over the past few years that net subscriber growth is not a key metric for the company, the market has continued to focus on it. Netflix ended Q3 2024 with 282.7 million subscribers and the market expects Netflix to add another 8.2 million subscribers in Q4 2024. That would compare to the 13.1 million new subscribers Netflix added in Q4 2023.

That would take the company’s global subscriber base to over 290 million but investors should be aware that Netflix management has signalled that this quarter (Q4 2024) will be the last quarter that the company will report quarterly subscriber numbers.

Instead, Netflix has consistently said that it will be focused on revenue and operating margin as its primary metrics of business success. For investors, Netflix boasted strong operating income of US$2.9 billion in Q3 2024, resulting in a strong operating margin of 29.6%.

Meanwhile, Netflix management had guided for a Q4 2024 operating margin of around 22%, which is still five percentage points higher than the operating margin recorded in Q4 2023. On the revenue front, management has guided for 15% year-on-year revenue growth for Q4 2024 and has projected revenue to be around US$10.1 billion for the quarter.

Burgeoning ads business will be a focus

As Netflix cracks down on password sharing and starts to see a slowdown in total subscribers given its universal presence, investors are looking to Netflix’s ad business as a future growth driver.

In Q3 2024’s shareholder letter, management reiterated that “it’s still very early for our advertising initiative” but that the company’s biggest near-term challenge was that it “was scaling faster than our ability to monetise our growing ad inventory”.

While that’s potentially a challenge, it’s clearly also an opportunity, so a lot of investors will be keen to hear more on Netflix’s nascent ads business despite the company saying that it doesn’t expect ads to be a primary driver of revenue growth for 2025.

Will Asia post another strong quarter for Netflix?

While the US and Canada make up the core of Netflix’s revenue generation, Asia Pacific (APAC) actually led all regions in terms of revenue growth in Q3 2024 – notching up 19% year-on-year revenue growth to US$1.12 billion during the quarter.

Investors will want to see if that momentum continues as the company said during its Q3 2024 earnings release that it was improving its product/market fit in APAC with a strong local content slate in Japan, Korea, Thailand, and India.

Outside of that, investors will be keen to hear more from management about Netflix’s plans for live sports, particularly after Disney’s recent announcement that it plans to merge its Hulu + live TV businesses with FuboTV’s channels to create a combined live sports juggernaut. 

Looking ahead to 2025 for investors

So, for investors, should they think about buying Netflix shares ahead of the company’s earnings? In the past year, Netflix shares are up 75% and, while its trailing 12-month price-to-earnings (PE) ratio is high at 47.6x, the company’s ability to generate money isn’t in doubt.

If management can deliver on the revenue and operating margin fronts, while also surprising with any exciting new announcements, then investors could certainly see a pop in its share price.

Yet it’s worth noting the intensely-competitive nature of the streaming business as more players have entered the space in recent years. Despite that, Netflix is well-positioned to continue thriving as a market leader in the streaming space and its stock could present an interesting opportunity for investors ahead of its earnings.