North America

Earnings Preview: Netflix Q3 2018 (NFLX)

By: Craig Bowles

Overview

Netflix, Inc. (NFLX) is slated to report 3Q2018 earnings after the bell on Tuesday, 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 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 $0.68. Analyst consensus is $0.68 (range $0.63 to $0.74). (Source: Yahoo! Finance) Consensus was $0.73 three months ago.
  • Revenues: Company guidance is $3.988 bln. Consensus expectations are for a 33.9% y/y increase to $4.00 bln (range $3.97 bln to $4.09 bln). Consensus was $4.14 bln three months ago.
  • Domestic Streaming Subscriber Additions: Company guidance is for 650,000 net additions.
  • International Streaming Subscriber Additions: Company guidance is for 4,350,000 net additions.
  • Earnings Per Share (EPS) Guidance (4Q 2018): Analysts expect $0.51 (range $0.29 to $0.89).
  • Revenue Guidance (4Q 2018): Analysts expect $4.24 bln (range $4.14 bln to $4.43 bln).
  • Netflix Price/Sales of 10.6 compares to a 5.9 five-year average; Price/Book of 31.6 compares to an 18.7 five-year average.
  • Analysts view Netflix with 30 Buy, 12 Hold, and 4 (3 last qtr) Sell ratings. (source: MarketBeat.com)
  • Insiders sold 420,078 shares over the last three months and sold a net 3,274,049 shares in the past year. (source: NASDAQ.com)
  • 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 8.13%. Options are pricing in an implied move of 6.85%.

Recent News

  • 10/11: Piper Jaffray subscriber surveys in the past year have shown that Netflix subscribers are willing to pay more for the service than they currently do, so pricing has room to move higher without a material impact to subscriber numbers. “Netflix has about 60% market share of U.S. internet households and less than 15% of international (excluding China) internet households, leaving room for further growth,” according to Barron’s.com.
  • 10/02: Goldman Sachs has probably the highest price target for Netflix at $470 and estimated 30 million new subscribers in 2019 vs consensus of 26.5 million. Mobile growth leaves plenty of room for expansion; an acceleration in spend into next year should drive subscriber growth above consensus; and evidence suggests the company has more popular content per dollar spent, according to Barron’s.com.
  • 9/19: Guggenheim Securities reiterated a Buy rating on Netflix citing the 3Q launch of original local-market content in India, upgrades to user experience and consumer products development, according to a post at CNBC.com.
  • 9/12: Netflix may be forced to pay higher copyright fees under the EU’s new directive, according to a post at variety.com.
  • 9/10: Netflix is starting to take Africa’s largest movie industry seriously, according to qz.com.
  • 9/04: Netflix is doubling down on its merchandising efforts with its hiring of former Disney exec Christie Fleischer to head its global Consumer Products team, according to a post at Techcrunch.com.
  • 8/24: SunTrust upgraded Netflix to Buy from Hold citing new momentum in India, according to a post at Businessinsider.com.
  • 8/15: Netflix is paying more up front for TV shows (30% over production vs the traditional 60-70% of production cost) to gain more later on big hits, according to a post at CNBC.com.
  • 8/13: Netflix CFO David Wells to step down, according to a post at Techcrunch.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 has remained off this summer’s highs when it was testing $420 but then reported disappointing subscriber growth. The stock had moved up from $100 in late 2016 and had doubled in 2018 while the general market struggled. The 200-day moving average is now being tested. Guidance tends to be conservative and suggests less robust domestic and international subscriber additions that are slightly below last quarter. Insider selling shows little change from last quarter. Over the past four quarters, Netflix has beaten and missed consensus expectations by an average of 1c. Estimize consensus for an EPS of $0.70 on revenue of $3.999 bln compares to analyst consensus of $0.68 on revenue of $4.00 bln.

 

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