North America

Earnings Preview: Netflix Q2 2017 (NFLX)

By: Craig Bowles

Overview

Netflix, Inc. (NFLX) is slated to report 2Q2017 earnings after the bell on Monday, July 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.

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 $0.15. Analyst consensus is $0.16 (range $0.08 to $0.24). (Source: Yahoo! Finance)
  • Revenues: Company guidance is $2.755 bln. Consensus expectations are for a 31.1% y/y increase to $2.76 bln (range $2.68 bln to $2.84 bln).
  • Domestic Streaming Subscriber Additions: Company guidance is for 600,000 net additions.
  • International Streaming Subscriber Additions: Company guidance is for 2,600,000 net additions.
  • Earnings Per Share (EPS) Guidance (3Q 2017): Analysts expect Netflix earn $0.23 (range $0.15 to $0.44).
  • Revenue Guidance (3Q 2017): Analysts expect $2.88 bln (range $2.79 bln to $2.97 bln).
  • Netflix Price/Sales of 7.1 compares to a 4.6 five-year average; Price/Book of 22.4 compares to a 15.3 five-year average.
  • Analysts view Netflix with 26 Buy, 15 Hold, and 2 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 426,689 (341,864 last qtr) shares over the last three months and sold a net 892,943 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 10.70%. Options are pricing in an implied move of 5.90%.

Recent News

  • 06/20: Guggenheim reiterated a Buy rating on Netflix after concluding investors are too pessimistic about the cost of developing its overseas audience, according to a post at Barron’s.com.
  • 06/07: Netflix’s belief is that producing Original Movies will be as or more efficient than licensing. The company wants to take creative risks but also looks at whether the amount of time spent watching a show lines up with the amount of money spent on it. Japan still has a strong DVD culture and more than 40% of all content consumed is local, versus 20% in other international markets, according to a post at Barron’s.com.
  • 06/02: Netflix’s original content strategy is four years old. Netflix has 49 million paying streaming members in the U.S. and another 45 million internationally. When House of Cards debuted in 2013, Netflix had 25 million U.S. subscribers and 5 million internationally, according to a post at Barron’s.com.

Technical Review

Netflix stock hit another new all-time high in June of $166.87. The current balance area around $156 followed $143 which would be the next area of downside support. Below that is $117, so the stock has seen mostly upside since mid-2016. (Chart courtesy of StockCharts.com)

Summary

While the Trump administration could remove net neutrality and Netflix would have to pass on the higher costs to its users, analysts remain quite bullish. Guidance suggests less robust domestic subscriber additions but that failed to materialize in prior quarters. Insiders have done some selling the past nine months without any purchases. Netflix has beaten estimates by an average of 5c the past four quarters. Estimize consensus for an EPS of $0.19 on revenue of $2.764 bln compares to analyst consensus of $0.16 on revenue of $2.76 bln.

 

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