We are now into the Q1 earnings confessional, and Netflix (NFLX) will release its quarterly report this Thursday, April 18, after the close of markets. The streaming giant has surprised to the upside with its performance over the last few quarters, but can it continue to impress even in 2024? We’ll discuss in this article.

Life has come full circle for Netflix, which lost streaming subscribers in the first half of 2022. It was the first time in a decade that the company lost subscribers, and many questioned whether it still deserved a place in the coveted FAANG group.

Indeed, when Bank of America analyst Michael Hartnett coined the term “Magnificent 7,” he excluded Netflix and instead added Tesla (TSLA), Nvidia (NVDA), and Microsoft (MSFT) to the group. Ironically enough, a recent Barron’s article now argues that Netflix “deserves a place in the Magnificent 7.”

There is some merit in the argument, as Netflix has surprised bears – including me – with both its top-line and bottom-line performance. It added 13.1 million net subscribers in Q4, while the yearly gain was nearly 30 million.

Netflix Q1 Earnings Estimates

Netflix guided for a 13% revenue growth for Q1. The company has stopped providing subscriber guidance, and said that revenues will be the best metric to gauge its growth. Nonetheless, subscriber numbers remain a key metric for markets, and one of the key reasons the stock has outperformed over the last year is because of the stellar subscriber numbers.

Analysts expect Netflix to add another 4.88 million subscribers in Q1. The company has doubled down on its ad-supported plan, and is cracking down on password sharing - which is helping to fuel growth in its paying subscribers.

Consensus estimates call for an almost 56% rise in Netflix’s Q1 earnings per share (EPS), while full-year EPS is expected to increase by over 41%.

A combination of rising subscriber numbers, strong pricing, higher ad revenues, and cost cuts is expected to fuel a rise in Netflix’s earnings.

NFLX Stock Long-Term Forecast

Morgan Stanley analyst Benjamin Swinburne expects Netflix’s earnings to grow at a CAGR of 25% between 2024 and 2028. To be sure, Netflix is also quite upbeat about its business, and its Q4 shareholder letter said, “We believe there is plenty of room for growth ahead as streaming expands, and our north star remains the same: to thrill members with our entertainment.”

The company is particularly bullish on its ads business, which it expects to be a significant revenue driver in 2025 and beyond.

On Wall Street, Netflix has a consensus rating of “Moderate Buy,” and is the lowest-rated stock among its FAANG peers. Of the 40 analysts covering NFLX stock, 22 rate it as a “Strong Buy,” and 1 says it's a “Moderate Buy.” Fifteen analysts rate it as a “Hold,” while the remaining 2 consider it a “Strong Sell.”

Netflix has a mean target price of $609.56, which is around 2% lower than last Friday’s closing price. That said, Netflix stock has defied analysts’ pessimism for the last several quarters, and might continue that good run if it yet again impresses with its quarterly earnings.

Netflix Stock Valuation

Netflix trades at a next 12-month price-to-earnings (PE) multiple of 36.2x, which is the second-highest among its FAANG peers, after Amazon (AMZN). That rich premium might explain why analysts are not that bullish about the stock.

However, Netflix has some growth drivers under its belt - including the continued crackdown on password sharing and  expected growth in its advertising business. The company’s deal with World Wrestling Entertainment (WWE) marks its entry into live streaming. According to JPMorgan (JPM) analyst Doug Anmuth (as reported by Barron's), the deal gives Netflix “valuable, differentiated content with favorable economics & content rights.” 

The ball looks to be in Netflix’s court, and the company needs to justify its almost 28% rise in 2024 with commensurate financial performance. Last year, Netflix benefited from favorable comparisons, as its subscriber numbers and earnings were subdued in 2022. However, now it has a high base effect to navigate, while expectations are high after the recent rally in its stock.