Netflix Q4 FY2021 Earnings Preview: Key Insights for NFLX Investors

Focus on Netflix's global paid streaming subscriber growth

Highlights to Watch

• Analysts forecast an EPS of $0.82, down from $1.19 in Q4 FY2020.
• Year-over-year increase in global paid streaming memberships is anticipated.
• Revenue growth is expected to continue but at a slower rate due to intensified streaming competition.

Netflix Inc. (NFLX) has weathered the COVID-19 pandemic better than many, benefiting from increased at-home streaming. Nonetheless, the company now faces challenges including decelerating revenue growth, heightened competition from other streaming platforms, and rising operational costs.

Investors will closely monitor Netflix’s Q4 FY2021 earnings report on January 20, 2022, to assess how effectively the company is managing these pressures. Expectations suggest a decline in earnings per share for the first time since late 2020, alongside the slowest revenue growth in several years.

A critical focus will be on Netflix’s global paid streaming memberships, a vital indicator of monetizable users. Having surpassed 200 million subscribers by the end of FY2020, subscriber growth has notably slowed over the past year. Analysts predict a modest slowdown in subscriber additions for Q4 relative to the previous quarter.

Over the past year, Netflix’s stock performance has lagged behind the broader market. The share price has fluctuated, showing periods of both outperformance and underperformance, with recent months reflecting a notable underperformance compared to the S&P 500. Netflix’s total return over the last year stands at 1.8%, significantly trailing the S&P 500’s 20.5%.

Netflix’s Earnings Performance Overview

In Q3 FY2021, Netflix exceeded EPS expectations while revenue met forecasts. EPS increased by 83.3% year-over-year, though growth momentum was slowing. Revenue rose 16.3% YOY, marking the slowest quarterly growth in over 15 quarters. The company attributed lighter content releases in the first half of the year to pandemic-related production delays but noted improvements in content offerings were underway.

During Q2 FY2021, Netflix’s earnings beat consensus estimates, with revenue matching expectations. EPS grew 86.8% YOY, down from 138.9% in the prior quarter. Revenue expanded 19.4% compared to the previous year, a deceleration from the 24.2% growth in Q1. Revenue gains were driven by higher average paid memberships and increased revenue per subscriber.

For Q4 FY2021, analysts predict a 31.2% YOY decline in EPS, marking the steepest drop in the past four years. Revenue is forecasted to increase by 16.1%, the slowest growth rate in at least 16 quarters. Despite this, full-year FY2021 EPS is expected to rise 76.4%, the fastest growth since 2018, while annual revenue growth is projected at 18.9%, the slowest pace in nearly a decade.

Source: Visible Alpha

Critical Metric: Global Paid Streaming Memberships

Investor attention will also center on Netflix’s global paid streaming subscriber base, a key revenue driver. This metric reflects the number of paying users worldwide who subscribe to Netflix’s streaming service. As competition intensifies from platforms like Apple TV+, Disney+, Amazon Prime Video, and HBO Max, Netflix is investing heavily in content to sustain subscriber growth.

Netflix’s global paid memberships have grown substantially over the past three years, increasing from 130.4 million at the end of Q3 FY2018 to 213.6 million by Q3 FY2021. However, growth rates have steadily decelerated as the subscriber base expands. Growth slowed from 25.4% in Q3 FY2018 to 8.4% in Q2 FY2021, before slightly rebounding to 9.4% in Q3 FY2021. For Q4, analysts anticipate a modest slowdown to 9.1%, the second-lowest growth rate in over three years.

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