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Cramer Bullish on Netflix’s Future After Strong Earnings Report

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Following Netflix’s latest earnings report, CNBC’s Jim Cramer reaffirmed his bullish stance on the company, expressing increased optimism about its future. He praised Netflix’s management for their outlook on growth and content, highlighting that the company has addressed concerns about sustaining its momentum.

“If you were worried about Netflix not having enough strategies to drive growth or enough justification for its high price-to-earnings ratio, I think those worries have been dispelled by last night’s earnings report,” Cramer remarked. He believes Netflix’s strong quarter will keep the bears in check for now but warns that when they reemerge, investors should remember the company’s solid fundamentals, which he thinks can “rock on higher for a long time.”

Netflix’s recent performance exceeded Wall Street’s expectations, with impressive earnings, revenue, and paid membership growth figures. The company’s stock surged by 11% on Friday and maintained those gains through the close.

Cramer was particularly encouraged by the company’s positive guidance for the next quarter and into 2025, dispelling investor fears about maintaining double-digit revenue growth. He also praised co-CEO Ted Sarandos for detailing Netflix’s extensive content library and strong user engagement, pointing out that on average, users watch two hours of content daily. Instead of bundling content with other services as some competitors do, Netflix is focused on adding more value to its platform.

The breadth of Netflix’s content offerings, such as popular shows like Emily in Paris, Selling Sunset, and Squid Game, along with two NFL games set to stream on Christmas, make Cramer optimistic about the company’s ability to grow its ad-tier. Sarandos’ positive view on how AI will impact Netflix’s business also adds to this optimism.

While Cramer clarified that he does not see Netflix becoming an AI-driven company, he believes that its growing content library, successful ad-tier model, and potential to leverage artificial intelligence will lead to substantial financial gains. “We have a lot of positives here, and it’s going to translate into a lot of money,” he concluded.

 

Dow and S&P 500 Reach New Record Highs, Driven by Netflix Earnings and Tech Stocks Surge

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On Friday, both the Dow Jones Industrial Average and the S&P 500 closed at new record highs, bolstered by impressive earnings from Netflix and a rally in technology stocks. The Nasdaq also ended the day in positive territory, contributing to a sixth consecutive weekly gain for all three major Wall Street indices—their longest winning streaks since late 2023.

For the week, the S&P 500 advanced 0.9%, the Nasdaq Composite added 0.8%, and the Dow rose by 1%. A significant driver of Friday’s performance was Netflix, which surged 11.1% to a record closing high after exceeding Wall Street’s expectations for subscriber growth and projecting continued expansion through the end of the year.

Tech stocks, particularly the “Magnificent Seven,” continued to push the broader market upward. Apple saw a 1.2% increase, spurred by robust iPhone sales in China, while Nvidia climbed 0.8% following an optimistic price target increase from BofA Global Research. The rise in Netflix shares also helped lift the communication services sector, which gained 0.9%, the top performer among the 11 S&P 500 sectors. The information technology sector saw a 0.5% increase.

David Waddell, CEO of Waddell & Associates, summed up the market sentiment, describing it as a “what’s not to like” scenario, pointing to favorable economic data, lower inflation, and positive corporate earnings.

At the close of the session, the S&P 500 rose 23.20 points (0.40%) to 5,864.67, while the Nasdaq gained 115.94 points (0.63%) to end at 18,489.55. The Dow closed at 43,275.91, rising 36.86 points (0.09%). This marked the fifth record closing for the Dow in the past six sessions, though gains were tempered by a 3.1% decline in American Express, which missed quarterly revenue expectations.

Financial companies have largely enjoyed a successful earnings season, though the S&P Banks index slipped 0.1%, breaking a five-day winning streak. Despite this, positive earnings reports and solid economic data have continued to sustain the upward momentum in the market.

However, analysts have cautioned that stretched valuations could leave stocks vulnerable to a pullback, particularly with the S&P 500 trading at nearly 22 times forward earnings. The looming Nov. 5 U.S. presidential election could also introduce volatility. Despite these concerns, David Waddell expressed confidence that strong earnings could override any political uncertainty or valuation concerns.

“We’ve reached the limit of gains from multiple expansion, so the future trajectory depends on earnings. We are priced for very strong earnings, and any disappointment could cause market disruptions. However, barring a recession, the bull market remains intact,” Waddell stated.

Investors have also shown increased interest in small-cap stocks, with both the Russell 2000 and S&P Small Cap 600 outperforming the larger indices for the week, though both were slightly down on Friday.

The energy sector was the only S&P sector to decline on Friday, dropping 0.4%. Lower oil prices and a 4.7% drop in SLB, which missed earnings expectations, dragged down other oilfield service providers like Baker Hughes (-1.3%) and Halliburton (-2.1%). The energy sector ended the week as the worst performer, losing 2.6%, weighed down by a 7% decline in U.S. crude prices due to concerns over Chinese demand and the conflict in the Middle East.

In the healthcare sector, CVS Health dropped 5.2% after announcing the replacement of CEO Karen Lynch with veteran David Joyner and withdrawing its 2024 profit forecast. This news also impacted other health insurers, with Cigna and Elevance Health both seeing declines, the latter closing at its lowest level in nearly 15 months.

Trading volume on U.S. exchanges totaled 10.62 billion shares, below the 20-day average of 11.56 billion shares.

 

Netflix Tops Subscriber Targets as Ad-Tier Signups Surge

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Netflix added 5.1 million new streaming subscribers in the third quarter of 2024, surpassing Wall Street expectations by over 1 million. This growth came largely from its ad-supported tier, which contributed to more than half of the new signups in countries where it is available. As a result, Netflix shares jumped 4.8% in after-hours trading, continuing their 47% rise for the year.

Despite the success in subscriber growth, Netflix is focusing more on revenue growth and profit margins. The company plans to stop reporting subscriber data next year, reflecting its shift toward emphasizing other financial metrics. Revenue for the quarter reached $9.825 billion, slightly ahead of projections, and Netflix’s earnings per share hit $5.40, exceeding the forecast of $5.12. Operating margins also saw significant growth, reaching 30% compared to 22% a year ago.

While the 5.1 million subscriber gain outpaced expectations, it was still a drop from the 8.76 million added in the same quarter last year. This has raised some concerns, particularly about Netflix’s domestic market, which some analysts believe may be nearing saturation. Forrester analyst Mike Proulx noted that while international growth opportunities remain, the U.S. market seems “tapped out.”

Looking ahead, Netflix is optimistic about the holiday season, anticipating even higher subscriber growth in the final quarter, driven by the much-anticipated return of the hit Korean drama Squid Game in late December. Co-CEO Ted Sarandos expressed confidence, stating, “We had a plan to re-accelerate the business, and we delivered on that plan.”

In addition to programming, Netflix has been expanding its live-event offerings, which are a key draw for advertisers. Upcoming events include a fight between YouTube star Jake Paul and boxing legend Mike Tyson, along with two NFL games scheduled for Christmas Day. These live events are part of a broader strategy to diversify its content and attract advertisers, though the company doesn’t expect advertising to be a major revenue driver until 2026.

Despite its success with the ad-supported tier, Netflix is maintaining its standalone approach in the streaming market. Sarandos reaffirmed that the company has no intention of bundling its service with other platforms like Disney+ or Warner Bros Discovery, preferring to focus on building its own value proposition.

Meanwhile, Netflix continues to adjust pricing strategies in key international markets. After raising prices in several European countries and Japan earlier this month, it will further increase prices in Spain and Italy this week.