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What to Expect from Netflix (NFLX) this Earnings Season?
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Netflix, Inc. (NFLX - Free Report) is set to report fourth-quarter 2016 results on Jan 18. In the last quarter, the company delivered a positive earnings surprise of 100.00%.
The company has delivered positive earnings surprises in the last four quarters with an average beat of 200.00%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Netflix has been drawing strength from its growing portfolio of original content. This apart, it remains focused on international expansion as it battles slowing domestic subscriber growth to solidify presence in markets like India and Korea.
In order to gain more subscribers in Korea, Netflix has announced a 12 episode original series named Love Alarm. It is based on “webtoon” by a famous Korean author Kye Young Chon. Netflix also collaborated with Indian movies’ superstar Shahrukh Khan’s production house, Red Chillies Entertainment. Per agreement, all the movies of the superstar will be available on Netflix for global viewing.
Apart from this, the company is also forming strategic partnerships with the likes of TiVo Corp and others to boost its content further. Moreover, Netflix has been strategically placing itself to meet the needs of the new-age binge-watchers.
However, investors need to watch out for high costs that will accompany rapid international expansion and production of original content. These aside, stiffening competition from bellwethers like Amazon.com (AMZN - Free Report) , Hulu and Time Warner’s HBO is a concern.
For the fourth quarter of 2016, management forecasts earnings of 13 cents per share and net income of $56 million. Domestic and international streaming revenues are expected to be $1.4 billion and $947 million, respectively. Total streaming revenues are expected to be $2.34 billion. Management expects to add 1.45 million subscribers in the domestic streaming segment compared with 3.75 million subscribers in the international segment in the fourth quarter.
Domestic streaming contribution profit is expected to be $515 million. International streaming loss is expected to be $75 million due to higher marketing spend. Netflix estimates U.S. contribution margin to be around 36.9% in the quarter. Netflix forecasts operating income of $125 million for the quarter.
Earnings Whispers
Our proven model does not conclusively show that Netflix is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Netflix’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 13 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Netflix has a Zacks Rank #3. Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
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What to Expect from Netflix (NFLX) this Earnings Season?
Netflix, Inc. (NFLX - Free Report) is set to report fourth-quarter 2016 results on Jan 18. In the last quarter, the company delivered a positive earnings surprise of 100.00%.
The company has delivered positive earnings surprises in the last four quarters with an average beat of 200.00%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Netflix has been drawing strength from its growing portfolio of original content. This apart, it remains focused on international expansion as it battles slowing domestic subscriber growth to solidify presence in markets like India and Korea.
In order to gain more subscribers in Korea, Netflix has announced a 12 episode original series named Love Alarm. It is based on “webtoon” by a famous Korean author Kye Young Chon. Netflix also collaborated with Indian movies’ superstar Shahrukh Khan’s production house, Red Chillies Entertainment. Per agreement, all the movies of the superstar will be available on Netflix for global viewing.
Apart from this, the company is also forming strategic partnerships with the likes of TiVo Corp and others to boost its content further. Moreover, Netflix has been strategically placing itself to meet the needs of the new-age binge-watchers.
However, investors need to watch out for high costs that will accompany rapid international expansion and production of original content. These aside, stiffening competition from bellwethers like Amazon.com (AMZN - Free Report) , Hulu and Time Warner’s HBO is a concern.
For the fourth quarter of 2016, management forecasts earnings of 13 cents per share and net income of $56 million. Domestic and international streaming revenues are expected to be $1.4 billion and $947 million, respectively. Total streaming revenues are expected to be $2.34 billion. Management expects to add 1.45 million subscribers in the domestic streaming segment compared with 3.75 million subscribers in the international segment in the fourth quarter.
Domestic streaming contribution profit is expected to be $515 million. International streaming loss is expected to be $75 million due to higher marketing spend. Netflix estimates U.S. contribution margin to be around 36.9% in the quarter. Netflix forecasts operating income of $125 million for the quarter.
Earnings Whispers
Our proven model does not conclusively show that Netflix is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Netflix’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 13 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Netflix has a Zacks Rank #3. Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Netflix, Inc. Price and EPS Surprise
Netflix, Inc. Price and EPS Surprise | Netflix, Inc. Quote
Stocks to Consider
Here is a stock that, as per our model, has the right combination of elements to post an earnings beat this quarter:
Seagate Technology Plc (STX - Free Report) , with an Earnings ESP of +1.87% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>