North America

Earnings Preview: Netflix Q4 2017 (NFLX)

By: Craig Bowles

Overview

Netflix, Inc. (NFLX) is slated to report 4Q2017 earnings after the bell on Monday, January 22nd. 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 $0.41. Analyst consensus is $0.41 (range $0.37 to $0.45). (Source: Yahoo! Finance)
  • Revenues: Company guidance is $3.274 bln. Consensus expectations are for a 32.5% y/y increase to $3.28 bln (range $3.24 bln to $3.36 bln).
  • Domestic Streaming Subscriber Additions: Company guidance is for 1,250,000 net additions.
  • International Streaming Subscriber Additions: Company guidance is for 5,050,000 net additions.
  • Earnings Per Share (EPS) Guidance (1Q 2018): Analysts expect Netflix earn $0.55 (range $0.32 to $0.93).
  • Revenue Guidance (1Q 2018): Analysts expect $3.49 bln (range $3.26 bln to $3.61 bln).
  • Netflix Price/Sales of 9.0 compares to a 5.9 five-year average; Price/Book of 28.8 compares to a 18.7 five-year average.
  • Analysts view Netflix with 33 (29 last qtr) Buy, 15 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 1,130,892 (last qtr was 495,842) shares over the last three months and sold a net 2,401,772 shares in the past year. (source: NASDAQ.com) Netflix hasn’t repurchased stock since 2011 during a global growth and expansion push.
  • Netflix competitors for streaming video include Amazon (AMZN) and Apple (AAPL).
  • Netflix shares have a 1-day average price change on earnings of 8.36%. Options are pricing in an implied move of 5.40%.

Recent News

  • 1/12: Netflix was the world’s top earning non-game mobile app in 2017 and grew revenue 138% year-over-year, according to a post at Sensor Tower Blog.
  • 1/10: MKM Partners believes “rising competition, media consolidation and net neutrality are all noise-level issues” for Netflix. Four long-term focus points are: 1. Direct-to-consumer streaming media has lower operating costs than traditional media. 2. Content spending might seem ambitious but the ability to use the content globally makes it more efficient. 3. Three-quarters of the company’s potential international market could be as many as three years away from peak net additions. 4. Based on estimates of 390 million global subscribers and a $25 billion programming budget, potential earnings could reach $30 per share, according to a post at Barron’s.com.
  • 1/9: Bank of America reiterated a Buy on Netflix citing their growing streaming market could reach 78.7 million international subscribers. The company plans to release 80 films in 2018 in a variety of genres, according to a post at Benzinga.com.
  • 12/29: In response to the new tax plan that eliminates companies’ ability to deduct performance-based bonuses, Netflix’s Chief Content Officer, Ted Sarandos, will receive a salary of 12 million and three of its executives will receive an average 31 percent boost to option grants, according to a post at Bloomberg.
  • 11/22: The Federal Communications Commission announced that it plans to vote to roll back net neutrality regulations. Although repealing net neutrality regulations could potentially cost companies like Netflix higher fees for usage of faster service speeds, Netflix CEO Reed Hastings explained earlier in the year that net neutrality isn’t particularly important for companies the size of Netflix that can get the deals they want, according to a post at U.S. News.

Summary

Netflix continues to focus on growing its global operating margin as its primary profitability and to increase its production of exclusive original content, while competition in the streaming media industry intensifies. Netflix increased U.S. and U.K. prices in late 2017. The fear is this could benefit Disney’s eventual streaming service launch. Apple reportedly set a $1 billion budget for video content through the end of 2018. Guidance suggests more optimism for both domestic and international subscriber additions. Insiders ramped up selling the past three months. Netflix has beaten estimates by an average of 2c the past four quarters. Estimize consensus for an EPS of $0.43 on revenue of $3.287 bln compares to analyst consensus of $0.41 on revenue of $3.28 bln.

 

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