North America

Earnings Preview: Netflix Q4 2016 (NFLX)

By: Craig Bowles

Overview

Netflix, Inc. (NFLX) is slated to report 4Q2016 earnings after the bell on Wednesday, January 18th. The earnings release is expected at approximately 4:05 p.m. ET with a conference call to follow at 5:00 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.

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Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): Netflix had typically reported a “clean” number that was comparable to consensus estimates but excluded items when necessary. Adjusted/Non-GAAP EPS was reported four of the last eight quarters but not the last three. Company EPS guidance is $0.13. Analyst consensus is $0.13 (range $0.11 to $0.16). (Source: Yahoo! Finance)
  • Revenues: Consensus expectations are for a 35.2% y/y increase to $2.47 bln (range $2.34 bln to $2.50 bln).
  • Domestic Streaming Subscriber Additions: Company guidance is for 1,450,000 net additions.
  • International Streaming Subscriber Additions: Company guidance is for 3,750,000 net additions.
  • Earnings Per Share (EPS) Guidance (1Q 2017): Analysts expect Netflix earn $0.18 (range $0.08 to $0.41).
  • Netflix Price/Sales of 7.0 compares to a 4.6 five-year average; Price/Book of 22.1 compares to an 15.3 five-year average.
  • Analysts view Netflix with 28 Buy, 14 Hold, and 7 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 704,154 shares over the last three months and sold a net 711,376 shares in the past year. (source: NASDAQ.com) Netflix hasn’t repurchased stock since 2011.
  • 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 13.39%. Options are pricing in an implied move of 10.26%.

Recent News

  • 01/11: JPMorgan makes Netflix a top pick for 2017 on ‘increased global profitability’, according to a post at CNBC.com.
  • 01/03: Netflix investors hope President-elect Donald Trump will not make changes to “net neutrality” regulation installed by the Obama Administration; Netflix and Comcast work together instead of against each other; and creation of good content doesn’t cost a fortune, according to a post at Barron’s.com.
  • 12/27: Netflix paid some $16 million an episode for a recent show that got mixed reviews, topping the cost for Game of Thrones, according to a post at Barron’s.com.
  • 12/27: Wedbush cites several examples of rising costs in what appears to be an arms race between Amazon and Netflix over video content. If continued, Netflix could have negative free cash flow for the next several years, according to a post at Barron’s.com.
  • 12/20: If Trump’s administration does away with net neutrality, Netflix will eventually have to pass on the higher costs to its users, according to a post at Barron’s.com.
  • 11/30: Netflix’s new download option that allows viewing without an internet connection could be a boon for subscribers. Also announced was the ability to download shows on mobile devices, according to a post on Barron’s.com.

Technical Review

Netflix stock increased 17x from September 2012 to December 2015’s $133.27 high and retested that level again in early 2017. Point and figure technicians have already met their bullish objective of $130. Balance area support is $114 to $118. (Chart courtesy of StockCharts.com)

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Summary

If Trump’s administration does away with net neutrality, Netflix will eventually have to pass on the higher costs to its users. Guidance suggests strong domestic and international subscriber additions despite worries the U.S. would slow. Insiders reversed their buying and sold heavily the past three months without a single purchase. Netflix has beaten estimates by an average of 6c the past four quarters. Estimize consensus for an EPS of $0.15 on revenue of $2.467 bln compares to analyst consensus of $0.13 on revenue of $2.47 bln.

 

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