Netflix (NFLX) Q3 FY 2021 Earnings Report Preview: What to Look For

Focus on NFLX global paid streaming subscribers

Key Takeaways

  • Analysts estimate EPS of $2.56 vs. $1.74 in Q3 FY 2020.
  • Global paid streaming subscribers are expected to rise YOY.
  • Revenue is expected to grow, but at a slower pace, as the viewership gains spurred by the pandemic subside.

Netflix Inc. (NFLX) experienced an acceleration in subscription growth last year as people sheltering at home increased their consumption of streaming entertainment during the COVID-19 pandemic. However, the pace of viewership gains has slowed this year as the economy has opened up, and as the streaming market has become increasingly competitive. That's prompted Netflix to seek faster growth by expanding into video games. The company made its first video game studio acquisition in late September, purchasing Night School Studio.

Investors will be watching to see if Netflix can overcome these headwinds and maintain its strong financial performance when the company reports earnings on Oct. 19, 2021 for Q3 FY 2021. Analysts expect both earnings per share (EPS) and revenue to expand, but at a slower pace than in recent quarters.

Investors will also focus on Netflix's global paid streaming subscribers, a key measure of its monetizable user base. The company surpassed 200 million total global subscribers at the end of FY 2020, but growth has been slowing dramatically compared to last year. Analysts expect a slight acceleration in the pace of growth in Q3 compared to the previous quarter.

Shares of Netflix have lagged the broader market over the past year. The stock's outperformance gap with the market especially widened from about mid-April to mid-August. It has since begun to close that gap but is still underperforming. Netflix's shares have provided a total return of 15.9% over the past year, below the S&P 500's total return of 28.4%.

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

Netflix Earnings History

Netflix reported Q2 FY 2021 earnings that missed analysts' expectations while revenue matched estimates. EPS rose 86.8% compared to the year-ago quarter, decelerating from the previous quarter's rapid pace. Revenue grew 19.4% year over year (YOY), its slowest pace out of any quarter in at least the past four years. Netflix said that its revenue growth was driven by increases in average paid streaming memberships and in average revenue per membership.

In Q1 FY 2021, Netflix beat analysts' consensus estimates on both earnings and revenue. EPS rose 138.9% YOY after declining 8.5% YOY in the previous quarter. Revenue grew 24.2% compared to the year-ago quarter, the fastest pace since the second quarter of FY 2020. Netflix said that its operating profit and operating margin both reached all-time highs during the quarter.

Analysts expect both EPS and revenue growth to rise at a robust pace in Q3 FY 2021. But that pace will be significantly slower than last year. EPS is expected to rise 46.9% while revenue is forecast to expand 16.3% compared to the year-ago quarter. That would be the slowest revenue growth Netflix has posted since at least the first quarter of FY 2017. For full-year FY 2021, analysts expect EPS to rise 71.3%, which would be the fastest pace since FY 2018. Annual revenue is forecast to grow 18.7%, which would be the slowest pace in at least the past eight years.

Netflix Key Stats
  Estimate for Q3 FY 2021  Q3 FY 2020 Q3 FY 2019
Earnings Per Share ($)  2.56 1.74 1.47
Revenue ($B) 7.5 6.4 5.2
Global Paid Streaming Subscribers (M) 212.9 195.2 158.3

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also focus on Netflix's global paid streaming subscribers, which the company refers to as "global streaming paid memberships". The metric indicates the number of global users that have signed up and paid for a subscription to receive streaming services. Currently, streaming memberships are Netflix's primary source of revenue. But video streaming has become increasingly competitive in recent years, and Netflix now faces threats from rivals like Apple Inc.'s (AAPL) Apple TV+, Walt Disney Co.'s (DIS) Disney+, Amazon.com Inc.'s (AMZN) Amazon Prime Video, and AT&T Inc.'s (T) HBO Max. The company is starting to venture into other areas of the entertainment industry as the streaming film and TV market becomes increasingly saturated.

Netflix expanded its global paid streaming subscribers from 54.5 million at the end of FY 2014 to 203.7 million as of the end of FY 2020. Growth, however, has gradually decelerated as the company's total subscriber base has continued to increase in size. In FY 2014, Netflix's global paid streaming subscribers rose at a pace of 31.5%. That pace slowed to 20.0% by FY 2019. It accelerated to 21.9% in FY 2020 as people sheltered at home amid the COVID-19 pandemic and streaming video became a go-to entertainment option for many. But the deceleration trend has returned so far in FY 2021, with YOY growth in the first quarter slowing to 13.6% and again to 8.4% in the second. Analysts expect a slight acceleration to 9.1% in Q3 FY 2021, but still much slower than the historical pace of growth. For year's end, analysts are forecasting global paid streaming subscribers to rise 8.6%.

Article Sources

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  1. The Wall Street Journal. "Netflix Tops 200 Million Subscribers for the First Time." Accessed Oct. 17, 2021.

  2. Bloomberg. "Netflix Plans to Offer Video Games in Push Beyond Films, TV." Accessed Oct. 17, 2021.

  3. Netflix Inc. "Expanding Our Games Team With the Acquisition of Night School Studio." Accessed Oct. 17, 2021.

  4. Netflix Inc. "Netflix to Announce Third-Quarter 2021 Financial Results." Accessed Oct. 16, 2021.

  5. Visible Alpha. "Financial Data." Accessed Oct. 15, 2021.

  6. Netflix Inc. "Q2 2021 Shareholder Letter," Page 1. Accessed Oct. 17, 2021.

  7. Netflix Inc. "Q1 2021 Shareholder Letter," Page 1. Accessed Oct. 17, 2021.

  8. Netflix Inc. "Form 10-K for the fiscal year ended December 31, 2020," Page 21. Accessed Oct. 16, 2021.