If you're a Netflix(NASDAQ: NFLX) investor -- like me -- it's OK to be excited and nervous. You have every right to be excited. The stock is beating the market with its 27% gain this year, more than doubling if we stretch the starting line to the beginning of last year.
You should also be nervous because it reports its first-quarter results shortly after Thursday's market close. Expectations are high, and with great upticks come great responsibilities. Netflix will need another strong financial update if it wants to build on its stellar gains over the past 15 months.
Leave the world behind
Momentum is on the side of the bulls. Netflix stock hit another 52-week high this month, something that it has now done for six consecutive months. But this isn't an all-time high for the premium digital video pioneer. Netflix is still 12% away from taking out the all-time peak it scored in late 2021. With the stock's tendency to move sharply higher or lower after fresh financials, it could be there by the end of this week if things go right.
The problem with the bubbly upbeat scenario is that Netflix itself offered up rosy guidance when it announced its fourth-quarter numbers back in January. Netflix was targeting $9.24 billion in revenue for the first three months of this year. The 13.2% year-over-year increase would be its biggest top-line jump in more than two years.
This is a better story at the other end of the income statement. Netflix is starting to cash in on the fruits of scalability. It's at the point now where the platform was able to start cracking down on password sharing without shifting into reverse on subscriber growth. The 260.3 million accounts it was serving worldwide by the end of 2023 is a 13% increase, its largest quarterly jump in nearly three years.
Good luck canceling Netflix. You'll find yourself on the outside of coworker and friend conversations about the widely watched shows and films on the service. Folks aren't flinching at price increases and the password sharing restrictions at Netflix, and that's padding its profitability.
Its guidance calls for $1.976 billion in earnings, or $4.49 a share. Its projected operating margin of 26.2% would be the strongest showing since the first quarter of 2021.
Image source: Getty Images.
Don't look up
Wall Street is scrambling to catch up to the ascending share price. This young week alone, the market has seen Macquarie and Guggenheim boost their price targets by $90 and $100, respectively. Analysts tracking the company seem to think that it's going to be a strong report, and they want to win style points by ramping up their bullishness before the report.
Things can still fall apart for the bellwether of streaming services stocks. A stock doesn't double in the span of 15 months without the ability to fall if the company itself stumbles. Growth should be fine on the top line. It's the bottom line where things can fall apart. Netflix has made investing in games, live content, and sports-adjacent programming this year. The push to expand its cheaper ad-supported memberships could squeeze margins as folks pay less and Netflix invests in digital marketing initiatives.
Bears can also argue that Netflix isn't perfect despite its lofty current share price. It does miss to the downside on its guidance from time to time. It has also misfired in the past, when it overestimates its ability to push monthly membership rates higher.
But you still don't want to bet against Netflix. It's a dominant player in a growing market. Investors tend to have happy Hollywood endings in similar scenarios. Thursday afternoon can't come soon enough for the excited -- and nervous -- Netflix shareholders.
Should you invest $1,000 in Netflix right now?
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Rick Munarriz has positions in Netflix. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
