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Netflix (NFLX) Up 2.6% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Netflix, Inc. (NFLX - Free Report) . Shares have added about 2.6% in the past month, underperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback?  Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Netflix Reports Solid Q4 Earnings, Subscriber Growth

Netflix reported better-than-expected fourth-quarter 2016 earnings. Earnings of $0.15 per share and revenues of $2.478 billion were well ahead of the Zacks Consensus Estimate of $0.13 and $2.468 billion, respectively. On a year-over-year basis, earnings increased more than twofold while revenues increased nearly 36%.

Netflix’s focus on international expansion and original content has paid off with the streaming giant adding 5.12 million net new additions overseas in the quarter. International Streaming revenues (38.3% of revenues) soared 67.3% year over year to $948 million driven by an increase in paid members.

Meanwhile, Domestic Streaming revenues (56.6% of revenues) improved 26.9% from the year-ago quarter to about $1.403 billion.

However, the DVD business continues to be in trouble with revenues (5.1% of revenues) declining 16.3% year over year to $126.4 million.

Subscriber Base

In the quarter, Netflix recorded total 7.05 million new members, bringing the total to approximately 93.8 million subscribers across the globe. Paid streaming members totaled 89.09 million, up from 70.84 million in the prior-year quarter.

In the Domestic Streaming segment, Netflix’s subscriber base totaled 49.43 million, up from 44.74 million in the prior-year quarter. Paid members increased to 47.91 million from 43.40 million in the prior-year quarter.

In the International Streaming segment, the company recorded 44.37 million members compared with 30.02 million in the prior year quarter. Paid members were approximately 41.19 million, up from 27.44 million in the year-ago quarter.

Margins

Consolidated contribution profit margin (revenues minus the cost of revenues and marketing cost) was 21.7% compared with 19.2% in the year-ago quarter.

Operating income has more than doubled year over year to $153.9 million. Operating margin increased 290 basis points to 6.2%.

Balance Sheet

Netflix had $1.734 billion in cash and cash equivalents (and short-term investments) as of Dec 31, 2016 compared with $2.310 billion as of Dec 31, 2015.

Cash used in operations in the quarter was $557.2 million compared with $244.7 million cash used in operations in the prior-year quarter. The company reported free cash outflow of $639 million.

Outlook

For the first quarter of 2017, management forecasts earnings of $0.37 per share.

Domestic and international streaming revenues are expected to be $1.471 billion and $1.045 billion, respectively. Total streaming revenues are expected to be $2.516 billion.

Management expects to add 1.50 million subscribers in the domestic streaming segment and 3.70 million subscribers in the international segment. Domestic streaming contribution profit is expected to be $607 million. International streaming segment is expected to report profits to the tune of $16 million. Netflix estimates U.S. contribution margin to be around 41.3% in the quarter.

Netflix forecasts operating income of $239 million for the quarter.

How Have Estimates Been Moving Since Then?

Following the release, the stock has flatlined.

Netflix, Inc. Price and Consensus

 

Netflix, Inc. Price and Consensus | Netflix, Inc. Quote

VGM Scores

At this time, Netflix's stock has a poor score of 'F' on both growth and momentum front. Following the exact same course, the stock was allocated a grade of 'F' on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Notably, the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.


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