As Netflix prepares to report its earnings, investor interest is growing, and it’s not surprising that the trading desk has been fielding numerous questions about the stock’s recent dip. The move lower ahead of earnings is expected, with many investors locking in profits before the big event. But what should we be paying attention to when Netflix reports after the U.S. markets close on Thursday?

De-risked or Not?

It feels like the earnings release has already been somewhat de-risked. While the stock has dropped, some investors are expressing a “buy the dip” mentality, indicating confidence in Netflix’s long-term potential. Particularly, long-duration investors are excited about Netflix’s revenue growth and EBIT (Earnings Before Interest and Taxes), especially since this will be the last quarter where Netflix discloses subscriber numbers.

The stock has been trading tactically, with many investors taking short positions when Netflix approached the $730 mark. However, it’s common for investors to take profits and scale down long positions as the stock trends lower ahead of an earnings report.

Subscriber Growth: The Key Metric

One of the most closely watched metrics will be subscriber growth, especially since this is the final quarter where Netflix will report these numbers. Originally, expectations for Q3 subscriber adds were around 6-7 million, but there has been some pushback, with predictions landing closer to 5-6 million. Most agree that a figure closer to 5 million could be disappointing, but could 6 million be enough to please investors? That’s still up for debate. Some more optimistic predictions even suggest a possibility of 7-8 million, but subscriber numbers alone may not be enough to assess the company’s outlook moving forward.

For Q4, the projected subscriber growth is more robust, with estimates ranging from 8 to 9 million adds. However, this will be the last time Netflix provides sub guidance, meaning investors will have to focus on other metrics going forward.

Key Areas to Watch

When Netflix reports, there are several key areas that investors will be keeping an eye on:

1. Q4 Subscriber Commentary: Given that this is the last quarter Netflix will report subscriber numbers, investors will be eager to hear management’s outlook on subscriber growth, particularly with a solid content slate scheduled for release.
2. Revenue and Margin Growth in 2025: Investors are also interested in early commentary on Netflix’s ability to drive double-digit (DD) growth and margin expansion in 2025. Currently, the Street expects around 12.5% revenue growth with a 200-basis-point margin expansion.
3. Pricing Updates: A crucial factor for Netflix’s revenue projections is price increases, and investors will be watching closely for any updates on how these might affect future earnings.
4. Ad Business Growth: Netflix has been expanding into the ad-supported subscription model. Any updates on the scaling of this ad business will be important for assessing its revenue potential.
5. Live Content, Sports, and Gaming Strategy: Netflix has been exploring new avenues, including live content, sports, and gaming. Any updates on these initiatives will provide insight into how Netflix plans to differentiate itself from competitors and create new revenue streams.

The Bogeys to Watch

Beyond qualitative commentary, there are several key quantitative metrics, or “bogeys,” that investors should be watching for:

• Q3 Subscriber Adds: 6-7 million (with some debate that it could land closer to 5-6 million).
• Q3 Revenue Growth (FX-neutral): In line with guidance at 19%.
• Q3 Revenue Growth (Reported): Expected at 14-15%.
• Q3 EBIT: $2.7 billion.
• Q4 Subscriber Adds: 8-9 million.
• Q4 Revenue Growth (FX-neutral): 17%.
• Q4 Revenue Growth (Reported): 14%.
• Q4 EBIT: $2.1 billion.
• FY24 Operating Margin: Expected to reiterate current guidance.
• FY24 Free Cash Flow (FCF): Guidance expected at $6 billion.

Final Thoughts

Netflix’s earnings report is poised to be a significant event for investors, especially since this will be the last quarter where subscriber numbers are disclosed. While the subscriber growth figures will grab headlines, long-term investors will likely focus on Netflix’s broader strategy, including its potential for margin expansion, revenue growth, and diversification into new content formats like live sports and gaming.

With so many moving parts, this earnings report could be a pivotal moment for Netflix, setting the stage for how the stock will trade into 2025. Investors should be prepared for potential volatility but keep an eye on the bigger picture—Netflix’s ability to innovate, grow, and adapt in a rapidly changing streaming landscape.