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Netflix Q3 FY2022 Earnings Report Preview: What to Look For

Look to NFLX global streaming paid subscribers

Key Takeaways

  • Analysts estimate EPS of $2.12 vs. $3.19 in Q3 FY 2021.
  • Global paid streaming memberships are expected to rise YOY at the slowest pace in at least six years.
  • Revenue is expected to rise YOY at the slowest pace since at least 2016 as it faces increasing competition in the streaming entertainment market.

Netflix Inc. (NFLX), the world's largest streaming platform by subscribers, will probably say third-quarter profit plunged at the steepest rate in more than six years as revenue growth decelerated during the third quarter thanks to slower subscriber growth and higher cancellation rates.

Netflix is likely to say earnings per share (EPS) dropped by more than a third year-over-year (YOY) to $2.12 as revenue climbed by just 4.7% to $7.8 billion, according to an average estimate from Visible Alpha. That would be the second earnings decline in the past three quarters and the slowest revenue growth in more than six years. Netflix reports Q3 earnings after market closes on Oct. 18.

The Los Gatos, California-based company is struggling to maintain growth in an increasingly competitive market and as customers return to offices, resulting in higher-than-usual rates of cancellations by new and returning subscribers. Reflecting its urgency to rebound, Netflix's new offerings include cheaper, ad-supported entertainment, a departure from its ad-free history.

Investors will focus on Netflix's global paid streaming memberships, a key measure of a platform's user base. The data, compiled quarterly, are especially important as additional streaming entertainment platforms compete for viewers. Netflix's global subscribers are likely to have risen at the slowest pace in more than six years.

Netflix shares are down 63.6% in the past year, more than triple the S&P's 19.3% decline as of Oct. 16.

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

Netflix Earnings History

Netflix posted robust annual EPS growth during the pandemic in 2020 and 2021 as millions of customers worldwide sheltered at home and turned to streaming entertainment services. On a quarterly basis, profit growth began to decelerate during that period, slowing to 11.8% in the fourth quarter of 2021 and declining 5.9% in this year's first quarter.

Netflix's revenue grew by at least 20% annually between 2018 and 2020 and dropped to 8.6% in this year's second quarter. Growth in Q3 FY 2022 is expected to be 4.7%, the slowest of any period since at least the first quarter of 2016.

Netflix Key Stats
  Estimate for Q3 FY 2022 Q3 FY 2021 Q3 FY 2020
Earnings Per Share ($) 2.12 3.19 1.74
Revenue ($B) 7.8 7.5 6.4
Global Streaming Paid Memberships (M) 221.7 213.6 195.2

Source: Visible Alpha

The Key Metric

Netflix's global paid streaming memberships, also known as global streaming paid subscribers, indicates the number of global users that have signed up and paid for a subscription to receive streaming services. Streaming memberships have long been Netflix's primary source of revenue. Video streaming has become increasingly competitive in recent years, and Netflix now faces threats from rivals such as Apple Inc.'s (AAPL) Apple TV+, Walt Disney Co.'s (DIS) Disney+, Inc.'s (AMZN) Amazon Prime Video, and AT&T Inc.'s (T) HBO Max. To attract new subscribers the company is spending more on content.

Netflix's quarterly subscriber growth has slowed in the last two years. In FY 2018 through FY 2020, quarterly subscriber growth ranged from 20.0% to 26.0%. It decelerated to 13.6% in Q1 FY 2021 and further slowed in the subsequent quarters, reaching 5.5% last quarter. Analysts now expect the slowest quarterly paid subscriber growth in several years as the growth rate drops to 3.8% for Q3 FY 2022.

Article Sources
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  1. IndieWire. "Disney+ Soars, Netflix Sinks: Here’s How Many Subscribers 10 Key Streamers Have Now."

  2. Bloomberg. "What Netflix Will Look Like in 2023."

  3. CNBC. "Disney+ and HBO Max show streaming strength against Netflix."

  4. Netflix Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 1.

  5. Visible Alpha. "Financial Data."

  6. Netflix Inc. "Netflix Third Quarter 2022 Earnings Interview."

  7. Netflix Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 20.

  8. Bloomberg. "Netflix Chooses Microsoft as Partner for Lower-Priced Service With Ads."

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