Netflix's Third Quarter Expectations and Competitive Analysis

Third Quarter Results Anticipated

Netflix (NFLX) will announce its third quarter earnings after the close on Tuesday. Investors will closely monitor the company's momentum in its advertising business and developments in live streaming program series. The stock has seen a roughly 40% increase year-to-date but has lagged behind the market and technology rivals in recent months. This is associated with questions regarding engagement growth, valuation, and the emergence of new competitors from AI-supported content platforms.

Wall Street Expectations

According to Bloomberg's consensus estimates, the expected results for the third quarter are as follows:

• Revenue: $11.52 billion, compared to $9.82 billion last year; Netflix's guidance: $11.53 billion
• Earnings Per Share (EPS): $6.94, compared to $5.40 last year; Netflix's guidance: $6.87

Netflix no longer reports detailed subscriber growth data.

Content and Live Event Performance

Analysts expect the results to be supported by strong performance from regular content series and live events. This includes the fight between Canelo and Crawford; the fight attracted over 41 million viewers worldwide, becoming the most-watched men's championship boxing match of the century.

Additionally, the animated hit film KPop Demon Hunters achieved the title of Netflix's most-watched film of all time with 325 million views. This highlights the platform's ability to create major hits from relatively unknown intellectual properties.

Competition and Advertising Growth

Beyond the headline results, investors will focus on Netflix's advertising momentum. This area is expected to be a dominant growth driver by 2026. Netflix expanded its advertising reach thanks to the new Amazon (AMZN) DSP integration, providing marketers with more options for purchasing inventory on the platform.

JPMorgan analyst Doug Anmuth noted that this move will "improve advertisers' sign-ups, flexible purchases, and measurement." He also expects advertising spending to increase in 11 markets in the current quarter.

According to Anmuth, Netflix's advertising revenue is projected to rise from $1.4 billion in 2024 to $2.9 billion in 2025 and $4.2 billion in 2026.

Long-Term Risks and Market Valuation

However, some analysts on Wall Street point out that the high valuation of the stock reduces the margin for error. Netflix is trading at approximately 45 times forward earnings estimates, which is a significant premium compared to both the overall market and technology rivals. Analysts from JPMorgan and Citi express that the optimism regarding advertising layer growth and engagement is reflected in the stock price.

Furthermore, reports last month indicated that Paramount Skydance (PSKY) is considering a bid for Warner Bros. Discovery (WBD). This could bring about a potential shift that shapes the streaming market. Analysts from JPMorgan and Bank of America see Netflix as unlikely to have a role with Warner Bros. and state that the combined Paramount-Warner Bros. entity does not pose an immediate threat.

In this context, Morgan Stanley analyst Ben Swinburne pointed out long-term risks associated with generative artificial intelligence. Swinburne emphasized that this technology could shape video production and distribution in the future but does not pose a threat in the short term.

Recent Developments and Criticisms

Additionally, recent discussions have been further fueled by Elon Musk's encouragement for users to cancel their Netflix subscriptions. Musk accused the platform of spreading "woke" content, resulting in a 5% drop in shares. In the following weeks, Musk's criticisms have somewhat diminished.