Netflix (NFLX 0.28%) will help kick off earnings season next week. The streaming-TV company is slated to report its first-quarter results on April 20. As one of the first major growth stocks to report earnings every quarter, investors will be watching the update closely.
Netflix will be up against a tough comparison in the year-ago quarter, when the streaming-TV specialist added an incredible 15.8 million new subscribers. "[O]ur membership growth has temporarily accelerated due to home confinement," Netflix said in its first-quarter update last year.
With such a unique year-ago backdrop, it will be interesting to see how Netflix's business grows on a year-over-year basis in 2021.
Here's what to look for.
For its first quarter of 2021, Netflix management expects to add 6 million new subscribers. Though this is down from the 8.5 million subscribers Netflix added in the fourth quarter of 2020, it's a strong number considering that there was likely some pull forward of demand in 2020 as many consumers signed up for Netflix as they were sheltering at home. In 2020, for instance, Netflix increased its total subscriber count by 37 million, up 31% year over year. This was a significant acceleration over the 28 million members Netflix added in 2019.
Investors should remember that Netflix's forecast aims for accuracy rather than baking in conservatism (as is the case for many other companies' guidance practices). For this reason, Netflix misses its own subscriber guidance from time to time.
The inherent operating leverage in Netflix's business continued to help the company's profitability last year. Its operating margin was 18% for the full year, up five percentage points year over year.
"For FY21, we're now targeting a 20% operating margin, up two percentage points from 2020 and higher than our previous 19% forecast, due to a more favorable revenue outlook," management said. For the first quarter of fiscal 2021 specifically, Netflix forecast an operating margin of 25%.
Finally, investors should look to see how many subscribers Netflix management thinks it will add in Q2. Given the unusually favorable environment Netflix saw in 2020 for its subscriber growth, it's still unclear how meaningfully the company's total subscriber base can grow this year. Investors should look to guidance for second-quarter subscriber additions to help them get a better idea of how well the streaming-TV company will be able to continue growing its subscribers with such impressive growth in the rearview mirror.
Netflix will report its first-quarter results after market close on Tuesday, April 20. Investors will be able to find the results on the company's investor relations website.