North America

Earnings Preview: Netflix Q1 2017 (NFLX)

By: Craig Bowles

Overview

Netflix, Inc. (NFLX) is slated to report 1Q2017 earnings after the bell on Monday, April 17th. The earnings release is expected at approximately 4:05 p.m. ET with a conference call to follow at 6:00 p.m. that is webcast through Netflix Investor Relations. The company operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD. Netflix stock split seven-for-one on July 15, 2015.

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Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): Netflix is typically reporting a “clean” number that was comparable to consensus estimates. Adjusted/Non-GAAP EPS was reported more before 2016. Company EPS guidance is $0.37. Analyst consensus is $0.37 (range $0.31 to $0.39). (Source: Yahoo! Finance)
  • Revenues: Consensus expectations are for a 34.9% y/y increase to $2.64 bln (range $2.52 bln to $2.71 bln).
  • Domestic Streaming Subscriber Additions: Company guidance is for 1,500,000 net additions.
  • International Streaming Subscriber Additions: Company guidance is for 3,700,000 net additions.
  • Earnings Per Share (EPS) Guidance (2Q 2017): Analysts expect Netflix earn $0.24 (range $0.09 to $0.36).
  • Netflix Price/Sales of 7.1 compares to a 4.6 five-year average; Price/Book of 23.1 compares to a 15.3 five-year average.
  • Analysts view Netflix with 27 Buy, 17 Hold, and 2 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 341,864 shares over the last three months and sold a net 787,702 shares in the past year. (source: NASDAQ.com) Netflix hasn’t repurchased stock since 2011 during a global growth and expansion push.
  • Netflix is compared to other video rental companies with quarterly results possibly impacting the likes of Hastings Entertainment (HAST) and Barnes & Noble (BKS). Amazon (AMZN) and Apple (AAPL) are the biggest competitors for streaming video.
  • Netflix shares have a 1-day average price change on earnings of 11.71%. Options are pricing in an implied move of 6.04%.

Recent News

  • 04/07: Eighteen Year Veteran Neil Hunt to Leave the Company Mid-Year; Chief Talent Officer Tawni Cranz Also Leaving Netflix.
  • 03/23: MKM Partners reiterated a Buy rating on Netflix citing the vast spending on programming of $14.5 billion means the company “is quickly becoming the powerhouse in the industry.” Netflix’s programming costs at 1.3 times the revenue expected for the next year and 0.6 times over two years are only slightly above average, according to a post at Barron’s.com.
  • 03/17: Bernstein added Netflix to its coverage and argues that video on demand remains a huge growth area for television and that Netflix has an “unassailable” position in the category, according to a post at Barron’s.com.
  • 03/15: Jefferies upgraded Netflix to Hold from Underperform after taking a survey of consumers in Germany and India, and finding interest in Netflix’s streaming in those two “key markets” is bigger than thought, according to a post at Barron’s.com.
  • 03/06: UBS upgraded Netflix to Buy from Neutral on the expectation that the company can grow its global subscriber base at an annual rate of 9% from now through 2032, according to a post at Barron’s.com.
  • 02/27: Netflix’s CEO Reed Hastings on nearing 100 million members around the world is excited about a bigger platform that becomes more attractive because it can give you global reach, according to a post on Barron’s.com.

Technical Review

Netflix stock increased 17x from September 2012 to December 2015’s $133.27 high and recently hit a new all-time high of $148.29. Point and figure technicians show the next balance area support at $117 if the stock can’t hold above $140. (Chart courtesy of StockCharts.com)

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Summary

While the Trump administration could remove net neutrality and Netflix would have to pass on the higher costs to its users, analysts are quite bullish with Bernstein’s “If Jesus were a stock, he’d be Netflix.” Guidance suggests strong domestic and international subscriber additions despite worries the U.S. would slow. Insiders have done some selling the past six months without any purchases. Netflix has beaten estimates by an average of 5c the past four quarters. Estimize consensus for an EPS of $0.38 on revenue of $2.646 bln compares to analyst consensus of $0.37 on revenue of $2.64 bln.

 

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