Markets
Netflix Reports on Tuesday With Consensus at 82 Cents a Share. The Stock Has Fallen After Each of Its Last Five Reports
Netflix reports third-quarter earnings after the close on October 20, with Wall Street at $0.82 a share, the figure the company itself guided to, and revenue of about $12.88 billion, up 12%. The shares closed at $70.53 on October 16, down 2.9% on the day and 44% below their 52-week high, after two broker downgrades over its falling share of US TV time. The company's own guidance set the earnings bar.
The first of the big technology reports lands on Tuesday evening, from a company whose stock has spent a year proving that beating estimates is not enough. Netflix publishes third-quarter results after the close on October 20. The consensus is for earnings of $0.82 a share, which is exactly what the company guided to in July and roughly 40% more than a year earlier, on revenue of $12.87 billion to $12.88 billion, up about 12%. Netflix's own guidance was for 12% revenue growth, 11% at constant currency, and an operating margin of 33.2%; for the full year it has guided to revenue of $51.0 billion to $51.4 billion at a 31.5% margin.
The shares closed at $70.53 on Friday, October 16, down 2.86% from Thursday's $72.61 on a day the Nasdaq fell 2.15%. The 52-week range is $65.08 to $124.86, so the stock is 44% below its high and 8% above its low, and Bloomberg data show the last five quarterly reports were each followed by a fall; the July report, which was in line, produced a drop of more than 7%. Netflix no longer discloses subscriber numbers, so the reaction turns on revenue, margin, the advertising business and whatever the company says about engagement.
Engagement is the word that has done the damage. HSBC cut the stock to hold from buy on September 22 and lowered its price target to $76 from $96, citing YouTube's rapidly expanding presence on living-room screens and a fall in Netflix's share of US television time to 7.8% in July; Wells Fargo had gone to underweight the week before, with a $57 target, on what it called worrying engagement trends. The bull case, from Evercore ISI at $110, is that all of this is already in a price that has fallen by nearly half. Both sides will be reading the same letter to shareholders at 4:01 p.m. on Tuesday.
Advertising is the number most likely to move the stock. Netflix has said it expects to roughly double advertising revenue in 2026 to about $3 billion, and its ad-supported plan passed 250 million monthly active viewers in May. Analysts' estimates imply roughly $700 million to $800 million of advertising revenue in the quarter, though the company does not break the figure out and may not. A sign that the target is on track would support the margin story; a miss would confirm the fear that growth from price increases and password-sharing enforcement is running out before advertising can replace it.
The mechanics matter too. Netflix reports in the after-hours session, where the first prints are set by a few hundred thousand shares and are often reversed by the open; the stock's five straight post-earnings declines were all measured on the following day's close. For traders the useful question is not whether Netflix beats 82 cents, which the company essentially pre-announced, but whether a stock down 44% from its high can fall on in-line numbers for a sixth time.