This article presents Netflix‘s financial and technical performance based on the Q2 2024 earnings report. The company has expanded its subscriber base and optimized its operational efficiency, which is driven by increased paid memberships and strategic content enhancements. Additionally, Netflix’s successful foray into new revenue streams, such as advertising, further underscores its robust growth potential.

Financial Performance

Netflix’s Q2 2024 earnings report highlights a robust performance, demonstrating a 17% growth in revenue and a notable increase in operating margin to 27.23% from 22% in the same quarter last year. The intense growth in the operating margin during the past two decades is shown in the chart below. The revenue growth was primarily driven by a 16% increase in the average number of paid memberships.

The revenue and operating margin increase signals Netflix’s effective strategy in expanding its subscriber base and optimizing operational efficiency. These results suggest a positive outlook for Netflix, as the company has surpassed expectations and demonstrated its ability to capitalize on its growing global footprint.

Moreover, the company’s decision to enhance its TV homepage and introduce various hit series and films has attracted a larger audience. The success of series like “Bridgerton S3” and movies such as “The Roast of Tom Brady” contributed to Netflix achieving its largest live audience to date.

By focusing on popular content and user experience, Netflix is positioned well to retain and grow its subscriber base. This strategic emphasis on content and platform innovation is bullish for the company, suggesting sustained user engagement and revenue growth.

Netflix’s steady progress in scaling its advertising business also bodes well for its future growth. The 34% quarter-on-quarter growth in ads tier membership indicates a significant new revenue stream still in its early stages of development.

Netflix plans to test an in-house ad tech platform in Canada in 2024. They intend to expand this platform more broadly in 2025, setting the stage for a more diversified and robust revenue model. This strategic move into advertising could unlock substantial value for the company and its shareholders, further supporting a bullish outlook.

Finally, the impressive year-over-year growth in EPS, from $3.29 to $4.88, reflects Netflix’s enhanced profitability. Including a $43 million non-cash unrealized gain from foreign exchange remeasurement adds to the strong earnings performance, highlighting Netflix’s effective financial management amid currency fluctuations. This financial resilience, combined with strategic growth initiatives and content innovation, underscores a bullish case for Netflix as it continues to expand its global presence and revenue streams.

On the other hand, Netflix’s forecast for the remainder of 2024 also indicates an optimistic outlook, with an expected revenue growth of 14% to 15%, up from the previous estimate of 13% to 15%. This revision reflects the company’s confidence in solid membership growth and the resilience of its business model despite foreign exchange challenges.

Netflix also projects an operating margin increase of 26%, driven by improved revenue expectations and disciplined expense management. These factors suggest a bullish trend for Netflix as it continues to expand its profitability and market presence, demonstrating strong financial health and the ability to navigate global economic conditions effectively.

Technical Performance

The technical outlook for Netflix is strongly bullish, as seen in the monthly chart below. It shows that the stock price has remained within a bullish trend throughout the 21st century. This trend is observed using the blue trend lines, and the price has continuously traded within this channel for the past two decades. During this period, two strong buy signals were observed within this bullish trend. The first buy signal was at the low of $7.544 in 2012, while the second occurred in 2022 at $162.71.

The RSI was nearly oversold when these signals emerged, and the price resulted in a continued rally following these signals. The stock price has continuously risen since the 2022 bottom, indicating that it may achieve a solid upward move in the next few months. The chart shows that the RSI is approaching overbought levels, but there are no signs of a top formation. Historically, Netflix has continued to move upward, even within overbought market levels.

To further understand the above analysis, the calculations show that Netflix has the potential to continue its bullish momentum for longer period due to the confirmation of a bottom. This scenario is illustrated in the chart below, which shows that the 2004 drop in Netflix was a 78% decline, resulting in a bottom in Q1 2005 at $1.2729. The 2012 drop was an 83% decline, leading to a bottom at $7.5443, while the 2022 drop was a 77% decline, resulting in a bottom at $162.71.

These bottoms initiated a rally of over 1500% from their respective lows toward the cycle top. Therefore, Netflix’s bottom in 2022 will likely continue higher, reaching new highs. The rally has not yet exceeded a 500% gain from the respective bottom, suggesting there is much more potential for growth in the next months.

Based on the above explanation, Netflix’s stock price is still likely to remain elevated at higher levels, and every short-term correction is likely to be bought. Despite the overbought conditions, the price is likely to continue moving higher.

Risk Analysis

Despite Netflix’s strong financial and technical performance, several market risks could impact its future growth and profitability. One significant risk is the potential for increased competition in the streaming industry, which could lead to a slowdown in subscriber growth or even a decline in market share.

Competitors like Disney+, Amazon Prime Video, and HBO Max continue investing heavily in content creation and distribution, which may dilute Netflix’s market presence and pressure its pricing power. Additionally, changes in consumer preferences, such as a shift away from streaming services or a preference for competitors’ offerings, could negatively affect Netflix’s revenue growth and subscriber base.

Another market risk relates to macroeconomic factors and foreign exchange fluctuations, which Netflix has acknowledged as potential challenges. Given the company’s substantial international operations, currency volatility can significantly impact its reported financial results. For example, a strengthening U.S. dollar against other currencies could reduce the value of Netflix’s international revenues when converted back to dollars, negatively impacting its profitability.

Furthermore, global economic downturns or recessions could reduce disposable income, lowering demand for discretionary services like streaming subscriptions. This risk is particularly relevant as Netflix continues to expand its presence in emerging markets, where economic instability could have a more pronounced effect on consumer behavior.

Bottom Line

In conclusion, Netflix’s Q2 2024 earnings report demonstrates strong financial and technical performance, supported by impressive revenue growth, an expanding subscriber base, and effective cost management. The company’s focus on content innovation, user experience, and a diversified revenue model, including an expanding advertising business, positions it well for continued growth.

While the technical analysis shows a bullish trend with significant potential for future gains, market risks such as increased competition, macroeconomic factors, and currency fluctuations could pose challenges. Nevertheless, Netflix’s strategic initiatives and financial resilience suggest it is well-prepared to navigate these risks and capitalize on growth opportunities, maintaining a positive outlook for its future performance. The cycle’s bottom in 2022 for Netflix’s stock price suggests that the stock will likely move higher, and investors may consider buying on dips.