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Netflix (NFLX) to Report Q1 Earnings: What's in the Cards?
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Netflix, Inc.(NFLX - Free Report) is set to report first-quarter 2017 results on Apr 17. In the last quarter, the company delivered a positive earnings surprise of 15.38%. The company has delivered positive earnings surprises in the last four quarters with an average beat of 141.35%.
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 its presence in markets like India and Korea.
The recently added features like offline viewing and skip opening credits reflect Netflix’s focus on enhancing user experience, which is a positive.
Meanwhile, Investopedia, which quoted research firm Comscore, stated that Netflix remains the leader in the over-the-top (OTT) services space despite stiff competition from Alphabet Inc.’s (GOOGL - Free Report) YouTube and Amazon.com, Inc.'s (AMZN - Free Report) Amazon Prime Video service. The study is based on data collected in the month of December last year.
Furthermore, reportedly, in Dec 2016, Netflix had the highest penetration rate of 75% when it came to OTT services, followed by YouTube with 53%. Amazon and Hulu have penetration rates of 33% and 17%, respectively. Notably, subscribers of Netflix clocked 28 hours of average viewing time per month, closely trailing Sling TV with an average viewing time of 47 hours per month.
We note that Netflix has outperformed the Zacks Broadcasting-Radio/TV industry in the last one year. While the stock returned 35%, the industry gained 14.9%.
The outperformance can be attributed to the company’s continuing subscriber growth and an expanding original content product portfolio.
However, investors need to watch out for high costs that will accompany rapid international expansion and production of original content.
For the first quarter of 2017, management forecasts earnings of 37 cents 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 compared with 3.70 million subscribers in the international segment in the first quarter.
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.
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 38 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.
Stock to Consider
Here is a stock that, as per our model, has the right combination of elements to post an earnings beat this quarter:
While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public. Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Click here for Zacks' private trades >>
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Netflix (NFLX) to Report Q1 Earnings: What's in the Cards?
Netflix, Inc.(NFLX - Free Report) is set to report first-quarter 2017 results on Apr 17. In the last quarter, the company delivered a positive earnings surprise of 15.38%. The company has delivered positive earnings surprises in the last four quarters with an average beat of 141.35%.
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 its presence in markets like India and Korea.
The recently added features like offline viewing and skip opening credits reflect Netflix’s focus on enhancing user experience, which is a positive.
Netflix, Inc. Price and EPS Surprise
Netflix, Inc. Price and EPS Surprise | Netflix, Inc. Quote
Meanwhile, Investopedia, which quoted research firm Comscore, stated that Netflix remains the leader in the over-the-top (OTT) services space despite stiff competition from Alphabet Inc.’s (GOOGL - Free Report) YouTube and Amazon.com, Inc.'s (AMZN - Free Report) Amazon Prime Video service. The study is based on data collected in the month of December last year.
Furthermore, reportedly, in Dec 2016, Netflix had the highest penetration rate of 75% when it came to OTT services, followed by YouTube with 53%. Amazon and Hulu have penetration rates of 33% and 17%, respectively. Notably, subscribers of Netflix clocked 28 hours of average viewing time per month, closely trailing Sling TV with an average viewing time of 47 hours per month.
We note that Netflix has outperformed the Zacks Broadcasting-Radio/TV industry in the last one year. While the stock returned 35%, the industry gained 14.9%.
The outperformance can be attributed to the company’s continuing subscriber growth and an expanding original content product portfolio.
However, investors need to watch out for high costs that will accompany rapid international expansion and production of original content.
For the first quarter of 2017, management forecasts earnings of 37 cents 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 compared with 3.70 million subscribers in the international segment in the first quarter.
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.
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 38 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.
Stock to Consider
Here is a stock that, as per our model, has the right combination of elements to post an earnings beat this quarter:
TE Connectivity Ltd (TEL - Free Report) , with an Earnings ESP of +0.94% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks’ Best Private Investment Ideas
While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public. Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Click here for Zacks' private trades >>