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Netflix Earnings - What to Expect

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Netflix Earnings - What to Expect

July 13 2015, 06.56am GMT


With streaming market leader Netflix due to report second quarter earnings on Wednesday after close of trading, this high profile stock is certain to attract intense investor interest.

Netflix Inc. (NFLX, +1.57%) has attracted an excessive amount of analyst speculation and forecasting in the recent past, particularly since the announcement of the 7 for 1 stock split which resulted in the stock hitting a record trading high of $706 the next day. The shares dipped sharply a short while later when Carl Icahn announced that he was selling his last holdings in Netflix of approximately 1.4 million shares.

Netflix shares have enjoyed a spectacular year and have almost doubled in price year-to-date and are currently trading at the $670 per share level. Analysts covering the stock at FactSet have an average price target of $643 and an average rating of overweight. Meanwhile, FBR Capital Markets & Co. has a target price at or above $900.

The introduction of devices, such as Chromecast and Fire TV, with around 20 million streaming units sold in 2014, also make for a rosy picture. Barbara Kraus, director of research at Parks Associates told CNET Media that the expectation was for 50 million streaming devices to be sold by 2017. These figures mean that Netflix should continue growing its subscriber base in local and foreign markets which the company forecasts will be 64.8 million, up from 62.3 million at the end of the first quarter.

Meanwhile, analysts polled by FactSet expect Netflix to report earnings of 28 cents per share which would be 10 cents per share less than in the first quarter. This would also be substantially below the Q2 figure of $1.15 which was posted in 2014. First quarter results missed the analyst forecasts of 63 cents per share which Netflix at the time said was as a result of dollar strength and the figure adjusted for currency changes would have exceeded forecasts by 14 cents with earnings of 77 cents per share.

Nasdaq earnings forecasts from data provided by Zacks Investment Research for Netflix for the second quarter show a consensus forecast of 32 cents EPS with a full year forecast to December 2015 of $1.54.

The consensus according to FactSet with regard to total revenue is for an increase of 4% over the Q1 figure to $1.65 billion made up of $1.02 billion in domestic streaming, $457 million in foreign market revenue and $164 million from domestic DVD sources. Total revenue for Q1 met forecast expectations.

Netflix has the ambitious target of being in 200 countries by the end of 2016 and with this in mind; Netflix CEO Reed Hastings has said that he expects losses from international markets to grow to $101 million in the second half of 2015. The Chinese market, with its enormous number of consumers, has seen opposition to Netflix from local companies and Hastings says the company is unsure of the best approach to take to China.

Also, Morgan Stanley analyst Benjamin Swinburne noted that between China and India, another potential growth market, the total household count is nearly 750 million.

Swinburne added, “Near term, lower broadband penetration rates and the relatively more challenging infrastructure leads us to take a more conservative approach, but improvements in these trends over time could result in significant upside potential.”

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