North America

Earnings Preview: Netflix Q3 2017 (NFLX)

By: Craig Bowles

Overview

Netflix, Inc. (NFLX) is slated to report 3Q2017 earnings after the bell on Monday, October 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 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 $0.32. Analyst consensus is $0.32 (range $0.21 to $0.34). (Source: Yahoo! Finance)
  • Revenues: Company guidance is $2.969 bln. Consensus expectations are for a 29.8% y/y increase to $2.97 bln (range $2.95 bln to $3.01 bln).
  • Domestic Streaming Subscriber Additions: Company guidance is for 750,000 net additions.
  • International Streaming Subscriber Additions: Company guidance is for 3,650,000 net additions.
  • Earnings Per Share (EPS) Guidance (4Q 2017): Analysts expect Netflix earn $0.32 (range $0.18 to $0.52).
  • Revenue Guidance (4Q 2017): Analysts expect $3.13 bln (range $3.02 bln to $3.23 bln).
  • Netflix Price/Sales of 8.5 compares to a 4.6 five-year average; Price/Book of 27.1 compares to a 15.3 five-year average.
  • Analysts view Netflix with 29 Buy, 16 Hold, and 2 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 495,842 shares over the last three months and sold a net 1,968,549 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 9.20%. Options are pricing in an implied move of 5.50%.

Recent News

  • 10/05: Netflix will hike prices in the U.S. by $1-$2 in November, according to a post at Mashable.com.
  • 09/19: Netflix won 20 Emmy Awards and received 91 Emmy nominations. The company allocated $6 billion to original content in 2017 and will increase the budget to $7 billion in 2018, according to a post at Zack’s.com.
  • 09/19: Netflix CFO David Wells “expects to be FCF negative for many years,” according to a post at Fool.com.
  • 09/12: Guggenheim sees Netflix posting faster growth the next few years in Asia, the Middle East, and Africa rather than Europe and Latin America where the brand is more established, according to a post at Barron’s.com.
  • 09/06: T-Mobile introduced a new promotional strategy that gives customers on certain plans free access to all of Netflix’s content, according to a post at Benzinga.com.
  • 08/08: Disney announced it intends to remove its movies from Netflix and plans to launch a branded direct-to-consumer streaming service in 2019, according to a post at CNBC.com.

Technical Review

Netflix stock hit another new all-time high in October of $199.40. Balance area support is $179. Below that is $167. The 200-day moving average is $157 and the last two retests came in the first half of years 2015 and 2016. (Chart courtesy of StockCharts.com)

Summary

Netflix will increase U.S. prices in November and is reportedly planning to increase U.K. prices. The fear is this could benefit Disney’s eventual streaming service launch. Guidance suggests less robust domestic subscriber additions but that failed to materialize in prior quarters. Insiders have done some selling the past year without any purchases. Netflix has beaten estimates by an average of 3c the past four quarters. Estimize consensus for an EPS of $0.33 on revenue of $2.977 bln compares to analyst consensus of $0.32 on revenue of $2.97 bln.

 

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