Investors aren't sure what to make of Netflix's (NFLX -1.42%) short-term prospects right now. While the video streamer has returned to subscriber growth following a post-pandemic slump, it isn't clear whether revenue gains can accelerate into the double-digit range again. And competition continues to flood the market with quality TV and movies, potentially putting pressure on its ability to raise prices over time.
Yet the stock has rebounded in recent weeks ahead of the company's upcoming earnings report. Investors are hoping that this announcement will show progress in growth initiatives like Netflix's advertising push and its crackdown on shared accounts. Let's preview that report, due out on April 18, and see whether investors should buy the stock ahead of the volatility around that announcement.
April expectations
Investors have many reasons to tune in to the Tuesday announcement. Netflix is expecting to add nearly 8 million subscribers in a seasonally strong period for the business, with help from a packed content-release schedule. Revenue growth will ideally benefit from other factors, too, including the push into advertising, a crackdown on password sharing, and rising average prices.
Overall, sales growth is expected to improve to 4% from the 2% uptick Netflix managed through late 2022. But investors are most interested in seeing if revenue gains can start climbing back above the 10% achieved a year ago. "We believe we have a clear path to reaccelerate our revenue growth," executives said in a late January shareholder letter, and investors want to see evidence of that shift in the first quarter.
Financial wins
There's less ambiguity around Netflix's finances, which are impressive. The company beat management's goal for operating profit margin for the 2022 year, after all, and that core metric has been strong and stable throughout the pandemic. It was 20% in 2020, 22% in 2021, and 20% last year. The company is expecting to boost it slightly in 2023.
The cash flow outlook is just as bright. Netflix generated $1.6 billion of free cash flow last year and is expecting to double that in 2023. These wins show off the strength of its huge scale and put the industry leader well above peers like Roku and Disney, which are slashing costs today to craft more-profitable streaming businesses.
Is the stock a buy?
Given that context, it's easy to see how Netflix could generate excellent returns for long-term shareholders. Earnings and cash flow will be strong even under slow growth rates like the ones that investors saw in parts of 2022. These metrics would be even better if subscriber trends accelerate.
The big question is whether Netflix's core growth thesis is intact, meaning the company can gain more subscribers through exclusive content and improvements to its streaming service. The company's late 2022 results imply that this is still the case, and a further confirmation could arrive with the first-quarter report or subsequent 2023 earnings updates.
That's why investors should consider the stock a great way to gain exposure to an entertainment industry that's likely to keep expanding quickly over the next several years.
