Key Takeaways

  • Analysts estimate EPS of $2.97 vs. $1.57 in Q1 FY 2020.
  • Global paid subscribers are expected to rise at a slower pace YOY.
  • Revenue is expected to post a healthy gain despite increasing competition from other streaming platforms.

Netflix Inc. (NFLX) is coming off a banner year in which total subscribers surpassed the 200 million mark despite mounting competition from new streaming rivals. That growth was fueled by millions of consumers sheltering at home and eager for streaming entertainment amid the COVID-19 pandemic.

Investors will look at how much those rising subscriptions are bolstering Netflix's financial results when the company reports earnings after the market close on April 20, 2021 for Q1 FY 2021. Analysts expect robust growth in both earnings per share (EPS) and revenue.

Investors will also focus on Netflix's global paid subscribers, a key measure of its monetizable user base. After surpassing 200 million at the end of FY 2020, analysts expect total subscribers to continue rising, though the year-over-year (YOY) pace of growth is expected to be the slowest in at least 18 quarters.

Shares of Netflix have lagged the broader market over the past year, though they have wildly outperformed over the past several years. Some analysts' warnings in mid-2020 that the stock was overvalued may have slowed Netflix's rebound from the pandemic-induced crash that took place earlier in the year. Netflix's shares have provided a total return of 24.5% over the past year, half the S&P 500's total return of 49.5%.

One Year Total Return for S&P 500 and Netflix
Source: TradingView.

Netflix Earnings History

The stock initially received a substantial boost following the company's Q4 FY 2020 earnings report, pushing it to new highs. But it gave back most of those gains over the following week and a half. EPS fell 8.5% compared to the year-ago quarter, the first drop since Q2 FY 2019. Revenue rose a robust 21.5%, but it was the slowest pace of growth in at least 20 quarters. Netflix said that the decline in earnings reflected a $258 million non-cash unrealized loss from foreign exchange remeasurement on its debt that is denominated in euros.

In Q3 FY 2020, Netflix's EPS rose 18.4% while revenue grew 22.7% compared to the same three-month period a year ago. Excluding EPS declines in the final quarter of FY 2018 and the second quarter of FY 2019, it was the slowest pace of earnigs growth since Q1 FY 2016. Quarterly revenue growth continued a slowing trend that began in the final quarter of FY 2019. The stock plunged following the report and only made modest gains over the subsequent three months.

Analysts are currently expecting growth in both EPS and revenue to accelerate sequentially in Q1 FY 2021 compared to recent quarters. EPS is expected to rise 89.3%, which would be the fastest pace since the 165.0% rise posted in Q2 FY 2020. Revenue is expected to grow 23.8%, also the fastest pace since Q2 FY 2020. For full-year FY 2021, analysts expect EPS to rise 63.2%, which would be the fastest pace since FY 2018. Annual revenue is expected to grow 20.2%, which would be the slowest pace in at least eight years.

Netflix Key Stats
  Estimate for Q1 2021 (FY) Q1 2020 (FY) Q1 2019 (FY)
Earnings Per Share ($) 2.97 1.57 0.76
Revenue ($B) 7.1 5.8 4.5
Global Paid Subscribers (M) 209.8 182.9 148.9

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focused on Netflix's global paid subscribers, which the company refers to as "global streaming paid memberships". The metric measures the number of global users that have signed up and paid for a subscription to receive streaming services. Netflix's core strategy is to grow its streaming membership business globally as it is the company's primary source of revenue. That strategy is becoming increasingly challenging amid rising competition from new streaming services like Walt Disney Co.'s (DIS) Disney+, Apple Inc.'s (AAPL) Apple TV+, and NBCUniversal's Peacock. Quibi, a mobile streaming app that launched early last year, is already shutting down amid lower-than-expected viewership, a sign that, even amid rising demand for streaming during the pandemic, there's a lot of competition vying for viewers.

Netflix's number of total global paid subscribers has risen from 54.5 million at the end of FY 2014 to 203.7 million at the end of FY 2020, a nearly four-fold increase in six years. But as the total number of subscribers rises, it's becoming increasingly difficult to maintain the pace of growth. Global paid subscribers grew at a pace of 31.5% in FY 2014. That pace has been trending lower ever since, slowing to a pace of 20.0% in FY 2019. As demand for streaming picked up last year, global paid subscriber growth picked up a bit, growing 21.9%. However, Netflix may find it harder to maintain that rate of growth as its total user base gets bigger. That challenge is reflected in analyst estimates for Q1 and full-year FY 2021. Analysts expect global Netflix's paid subscribers to rise 14.7% YOY in Q1 FY 2021. For full-year FY 2021, analysts estimate a rise of 12.9% to 229.8 million total subscribers.