North America

Earnings Preview: Netflix Q2 2018 (NFLX)

By: Craig Bowles

Overview

Netflix, Inc. (NFLX) is slated to report 2Q2018 earnings after the bell on Monday, July 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 $0.79. Analyst consensus is $0.80 (range $0.71 to $0.85). (Source: Yahoo! Finance) Consensus was $0.65 three months ago.
  • Revenues: Company guidance is $3.934 bln. Consensus expectations are for a 41.5% y/y increase to $3.94 bln (range $3.92 bln to $4.00 bln). Consensus was $3.89 bln three months ago.
  • Domestic Streaming Subscriber Additions: Company guidance is for 1,200,000 net additions.
  • International Streaming Subscriber Additions: Company guidance is for 5,000,000 net additions.
  • Earnings Per Share (EPS) Guidance (3Q 2018): Analysts expect $0.74 (range $0.53 to $1.21).
  • Revenue Guidance (3Q 2018): Analysts expect $4.14 bln (range $3.92 bln to $4.26 bln).
  • Netflix Price/Sales of 13.5 compares to a 5.9 five-year average; Price/Book of 41.6 compares to an 18.7 five-year average.
  • Analysts view Netflix with 32 Buy, 16 Hold, and 3 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 302,992 shares over the last three months and sold a net 3,348,113 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 9.12%.

Recent News

  • 7/09: Netflix’s first original series from India debuted to positive reviews from critics, according to Businessinsider.com.
  • 7/05: Netflix is testing a new “Ultra” plan in Europe that would support 4K ultra-high-definition video on four simultaneous streams, along with high dynamic range (HDR), according to a post at Businessinsider.com.
  • 6/27: Bank of America reiterated a Buy rating on Netflix citing the strength of Netflix’s original content library while predicting 360 million subscribers by 2030. Netflix revealed 125 million subscribers at the end of Q1, according to a post at CNBC.com.
  • 6/26: Despite domestic growth having slowed to 10%, Bernstein’s survey concluded that Netflix could reach 90 million domestic subscribers in the next decade (the top end of the company’s forecasts), according to a post at Businessinsider.com.
  • 6/26: Imperial Capital initiated coverage on Netflix with Outperform. “What competition?”, according to Marketwatch.com.
  • 6/21: Pivotal Research Group increased their price target on Netflix to $500 and sees the AT&T/TWX deal as a potential positive for Netflix and negative for competitor HBO, according to a post at CNBC.com.
  • 6/21: Raymond James believes direct-to-consumer offerings will enhance the value of Netflix and justify pricing power. More viewing is happening on-demand; traditional media is more focused on non-scripted programming; and Netflix is providing more relevant content, according to a post at Barron’s.com.
  • 6/19: GBH Insights reiterated its Highly Attractive rating and increased their price target on Netflix to $500 based on a belief that the company’s competitive moat, franchise appeal, ability to increase international streaming customers through 2020, and original content build out will translate into robust profitability and growth, according to a post at CNBC.com.
  • 5/15: Piper Jaffray, which surveyed 1,100 U.S. customers, said 64% of respondents said they wouldn’t cancel before the price topped $15 a month. (The current premium deal is $14, with two tiers below that.) Another 23% said their cutoff was $20, according to a post at Barron’s.com.

Summary

Netflix continues to expand globally and increase production of exclusive original content. While competition in the streaming media industry intensifies, Netflix has taken advantage of a hole left from the major networks’ move to reality shows. Netflix stock was also probably helped by the repeal of “net neutrality.” The stock moved up from $100 in late 2016 to $400 more recently. The stock doubled in 2018 while the general market has struggled. The 50-day moving average provided support when the general market tested the 200-day in April, but now the Nasdaq 100 remains lofty compared to the Dow currently. Guidance tends to be conservative and suggests less robust domestic and international subscriber additions. Insiders selling eased up the past three months despite the increased valuations. Netflix has reported in line with consensus three of the past four quarters. Estimize consensus for an EPS of $0.81 on revenue of $3.938 bln compares to analyst consensus of $0.80 on revenue of $3.94 bln.

 

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