Netflix Inc. (NFLX) is expected to hold on to its top subscriber growth in the first quarter but will their profits meet expectations?
After the market closes on Wednesday, Netflix Inc. (NFLX) is scheduled to report its financial results for the 1st-quarter. Until now, Netflix has had the entire TV streaming industry to itself for almost 7 years. In 2007, the company launched its VOD (video-on-demand) component yet it was only this year when streaming video took center stage. New players are in the market with Netflix’s archrival, HBO, owned by Time Warner Inc., launching its own stand-alone service this month.
In terms of earnings, analysts from Thomson Reuters initially expected Netflix to report earnings of 77 cents a share compared with Netflix’s projected earnings of only 60 cents a share. Analysts now forecast earnings of 69 cents a share. For the same period last year, Netflix had earnings of 86 cents a share. Also, Netflix is expected to report $1.57 billion in revenue, which will be 24 percent higher from a year ago.
On Tuesday, Netflix shares closed at $478.71 per share. To date, the company has seen a 40 percent year-to-date increase in its share price compared with only a 1.7 percent year to date increase on the S&P 500 index (SPX). According to analysts surveyed by Thomson Reuters, Netflix shares have a median price target of four hundred and eighty five US dollars.
The big question about Netflix is their ability to succeed overseas. While the company is hoping to go global by 2016, this could cause unpredictability and volatility in their earnings results. As Doug Mitchelson, UBS analyst, explained, “We believe investors should maintain focus on the medium-term trendline rather than any one quarter’s results.”
Another element to focus on during the earnings report is the question of customer loyalty. With so many competitors entering the market, such as Apple TV, HBO Now and Sling TV, Mitchelson sees this as an excellent opportunity for Netflix as it will encourage users to move away from the traditional forms of pay-TV and to join the likes of Netflix which is offering a more affordable offer that is of good value.
Added to this, there has been a distinct link between the launch of top series such as ‘House of Cards’ and the performance of Netflix’s subscriber growth. The question now is will the extra user numbers aid in offsetting costs for this premium, original content?
MT4 chart: Netflix
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