• Netflix reports financials on Thursday after market close

• Forecasts point to double-digit revenue and earnings growth

• Valuation below 5-year average but at a premium versus benchmarks

Strong start to the year

Netflix kicks off the earnings parade for big tech stocks as the streaming giant is the first among the Magnificent 7 pack to unveil its second quarter financial results. Netflix’s stock has had a spectacular year, outpacing its streaming rivals and lagging only behind Nvidia and Meta within the Magnificent 7.

Much of the stock’s rally is attributed to the upbeat Q1 earnings, with Netflix reporting 296.6 million subscribers, a 16% year-on-year increase. This number highlighted the success of the firm's crackdown on password sharing, which was also reflected in its revenue and growth metrics.

What’s on the horizon?

Besides subscriber additions, investors will focus on the firm’s advertising business, price changes in different subscription plans as well as the prominent expansion into live sport events. Netflix has announced it will stop reporting subscriber figures from 2025, signaling potential growth saturation. In that sense, the streaming giant will likely outline its plans to boost profitability by expanding into international markets and sports entertainment, alongside increasing monetization of its ad-supported tier.

With the US streaming market reaching a mature stage and increasing competition from giants like Amazon and YouTube in live events, Netflix may face challenges in achieving past growth rates. However, leveraging its first-mover advantage in the streaming industry, Netflix can shift its focus from growth to profitability by capitalizing on its established client base.

Solid financials

The entertainment powerhouse has spent a lot of cash in recent quarters for the expansion and diversification of its business operations, with markets expecting the firm’s strategy to keep providing solid results. For the examined quarter, Netflix’s earnings per share (EPS) are expected at $4.74, which would represent a 44.21% increase on an annual basis, according to LSEG IBES data. Meanwhile, revenue is anticipated at $9.52 billion, marking a 16.39% jump against the same quarter last year

Rosy valuation but below historical levels

At current levels, Netflix’s valuation suggests continued investor confidence in the firm’s status and long-term growth prospects, though less than in the past. Specifically, the 12-month forward price-to-earnings ratio, which denotes the dollar amount someone would need to invest to receive back one dollar in annual earnings, currently stands at 32.2x, appearing relatively inflated compared to heavy-tech Nasdaq’s figure of 28.6x.

Although Netflix is trading at a premium against both its competitors and Nasdaq, its valuation is significantly lower than its five-year average, with the latter declining rapidly. So, this could either mean that Netflix is currently trading at attractive levels or investors are pricing in lower growth prospects.

New record high in sight?

From a technical standpoint, Netflix’s rally was recently rejected just shy of its all-time high of $700.00. However, the pullback seems to be on hold after testing the 50-day simple moving average (SMA), with investors likely eyeing the upcoming earnings release to determine the stock's next move.

If earnings surprise to the downside, the price could extend its retreat below the 50-day SMA and challenge the June support of $625.00. Lower, attention could shift to the $600.00 psychological mark, which also held its ground in March.

Alternatively, an upbeat earnings announcement could propel the price towards the inside swing low of $662.00 ahead of the all-time high of $700.00, recorded in late 2021.