Investors are binging on Netflix (NFLX -1.36%) these days. Shares of the globally popular streaming service have risen 34% this year, and Netflix can move even higher if it delivers blowout financial results next week.
Netflix is now a 7% gain away from taking out the all-time highs it hit when the shares briefly topped $700 in late 2021. A strong second quarter after the market close on Thursday will help the premium streaming pioneer get there. Naturally, the stock can also fall sharply if next week's update fails to impress the market as one of the early reporters this earnings season. Like a good Netflix series between gripping episodes, there's nothing like a good cliffhanger to keep audiences engaged.
Expectations are high
Netflix set the bar high when it initiated guidance for the second quarter three months ago. Its take for the reporting period back in mid-April called for a record $9.491 billion in revenue. This translates into a 16% year-over-year increase for Netflix, its biggest percentage jump since the fourth quarter of 2021. Is it a coincidence that it was also during that same reporting period nearly three years ago that Netflix hit its all-time high, or is it just cinematic poetry? The market will find out soon enough.
The news should be even better on the other end of the income statement. Margins are widening, and the $2.063 billion that Netflix is targeting implies a 39% improvement on the bottom line. With Netflix using its massive free cash flow to nibble away at its share count, the company sees earnings rising 42% to $4.68 on a per-share basis.
Analysts have been inching their forecasts higher since Netflix offered its public outlook. The market sees the streaming giant earning $4.74 a share on $9.53 billion in revenue when it reports on Thursday afternoon.
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Channel surfing
Netflix is seeing a surge in popularity worldwide. At the end of March, it was entertaining 269.6 million accounts, a 16% gain from where it was a year earlier. It doesn't have to post a similar increase this time around to accelerate its top-line results. Average revenue per user has been inching higher in its North American home market as a result of price hikes and the crackdown on password sharing. It's also had more time to improve the monetization of its discounted ad-supported offering.
Analysts seem to be anticipating a strong report from Netflix next week. At least three major analysts have jacked up their price targets on the stock this week. The latest move came Friday morning when JPMorgan boosted its price goal by $100 to $750 heading into the critical financial update. The three analysts' moves see the bellwether of streaming services stocks hitting between $735 and 775 in the near term, all-time highs in all scenarios.
There was one cautious analyst note this week. Citi is sticking with its $660 price target and neutral rating on the shares. However, it's a good sign when you see a handful of Wall Street pros putting out bullish notes and loftier price goals just days before a report. The majority of them see a strong report coming, and they want to make sure their clients know that before the numbers actually come out.
The last word will naturally come from Netflix itself. It's only fair that the creator of the cliffhanger scripts the resolution. Hitting a new all-time high by the end of next week isn't a given. It has set up some lofty goals, and the stock's already handily beating the market this year. There's a lot riding on the update, but that's entertainment.
