North America

Earnings Preview: Netflix Q1 2018 (NFLX)

By: Craig Bowles

Overview

Netflix, Inc. (NFLX) is slated to report 1Q2018 earnings after the bell on Monday, April 16th. 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 provides streaming media and video-on-demand online. In 2013, Netflix expanded into film and television production. Netflix stock split seven-for-one on July 15, 2015.

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 $0.63. Analyst consensus is $0.64 (range $0.55 to $0.98). (Source: Yahoo! Finance)
  • Revenues: Company guidance is $3.686 bln. Consensus expectations are for a 39.9% y/y increase to $3.69 bln (range $3.62 bln to $3.72 bln).
  • Domestic Streaming Subscriber Additions: Company guidance is for 1,450,000 net additions.
  • International Streaming Subscriber Additions: Company guidance is for 4,900,000 net additions.
  • Earnings Per Share (EPS) Guidance (2Q 2018): Analysts expect $0.65 (range $0.36 to $0.89).
  • Revenue Guidance (2Q 2018): Analysts expect $3.89 bln (range $3.77 bln to $4.00 bln).
  • Netflix Price/Sales of 11.6 compares to a 5.9 five-year average; Price/Book of 36.8 compares to an 18.7 five-year average.
  • Analysts view Netflix with 30 (33 last qtr) Buy, 16 Hold, and 3 (1 last qtr) Sell ratings. (source: MarketBeat.com)
  • Insiders sold 1,411,597 shares over the last three months and sold a net 3,470,510 shares in the past year. (source: NASDAQ.com) Netflix hasn’t repurchased stock since 2011 during a global growth and expansion push.
  • Netflix competitors include Amazon (AMZN), Apple (AAPL), Facebook (FB) and Hulu (DIS) (CMCSA) (TWX).
  • Netflix shares have a 1-day average price change on earnings of 9.59%. Options are pricing in an implied move of 7.00%.

Recent News

  • 4/12: Wedbush Securities has a price target of $110 for Netflix and worries that the debt balance could approach $15 billion, or around $30 per share for a company that “earns” $3 to $4 per share annually. (Cash burn wasn’t a problem for Tesla until it was.), according to a post at Businessinsider.com.
  • 4/06: Netflix offered more than $300 million to acquire a company that owns billboards across Los Angeles. Spending on marketing for its original shows and movies is expected at $2 billion this year, according to a post at Reuters.com.
  • 4/04: Moffett Nathanson reiterated a Neutral rating on Netflix citing valuation given a discounted cash flow valuation of $209 and a sum-of-parts valuation of $148, according to a post at Barron’s.com.
  • 3/28: Netflix’s added Susan Rice to its board at a time of increased regulatory scrutiny, according to a post at Fortune.com.
  • 3/28: Citi believes Netflix will grow to 262 million subscriptions within a decade (including 72% of the United States) and expects cash flow deficits to become positive numbers by 2021, according to a post at Forbes.com.
  • 3/26: Netflix movies will not be allowed at The Cannes Film Festival. Two Netflix films were screened in Cannes last year, according to a post at Reuters.com.
  • 3/22: Netflix created its own typeface, Netflix Sans, which will save millions of dollars a year in font leasing fees, according to a post at Techradar.com.
  • 3/16: RBC Capital Markets notes Google Search Trends in Japan, South Korea, Thailand and several other Asian nations have all seen steady increases in the frequency of “Netflix” queries , according to a post at CNBC.com.
  • 3/13: Pivotal Research says a 60 Minutes type of show by Netflix would be unusual since all of their current content doesn’t lose value due to timeliness, according to a post at Marketwatch.com.
  • 3/11: Netflix budgeted between $7.5 billion and $8 billion to produce 700 TV, film, and stand-up comedy projects this year, according to a post at Motley Fool.
  • 3/08: Former President Barack Obama and his wife have entered advanced negotiations with Netflix to produce a series of high-profile shows. Mr. Obama is seen talking about immigration and climate change while Mrs. Obama is expected to continue her push toward better nutrition, according to a post at NYTimes.com.

Summary

Netflix continues to expand globally and increase production of exclusive original content, while competition in the streaming media industry intensifies. Netflix stock was probably helped by the repeal of “net neutrality” and only tested the 50-day moving average when the general market tested the 200-day, so the lofty valuations remain a concern for the overall market’s leadership. Guidance suggests less robust domestic and international subscriber additions for early 2018. Insiders show increased selling over the past six months. Netflix has beaten and missed estimates by an average of 2c the past four quarters with the only beat in the year-ago qtr. Estimize consensus for an EPS of $0.65 on revenue of $3.691 bln compares to analyst consensus of $0.64 on revenue of $3.69 bln.

 

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