Back to top

Can Netflix (NFLX) Maintain its Earnings Streak in Q2?

Read MoreHide Full Article

Netflix, Inc. (NFLX - Free Report) is set to report second-quarter 2016 results on Jul 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 92.50%.

Let’s see how things are shaping up for this announcement.

NETFLIX INC Price and EPS Surprise

NETFLIX INC Price and EPS Surprise | NETFLIX INC Quote

Factors to Consider

The streaming giant has been able to drive subscriber growth both domestically and internationally based on its quality original programs. Apart from this, the company is also forming strategic partnerships with the likes of Disney (DIS - Free Report) 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 astronomically high costs that come with rapid international expansion and the addition of relevant content. The company has been ‘un-grandfathering’ or increasing subscription rates for its older customers since May 2016, which may result in loss of a few subscribers. In fact, as a result of this, the company gave a muted guidance for subscriber growth in the second quarter.

Apart from these, the company expects higher marketing spend for its international business to weigh on its financials in the soon-to-be reported quarter.  Stiff competition from bellwethers like Amazon.com (AMZN - Free Report) , Hulu and Time Warner’s HBO can also add to the challenges.

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, 2 or 3 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 2 cents per share.

Zacks Rank: Netflix has a Zacks Rank #3 (Hold). Though a 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:

Post Holdings Inc. (POST - Free Report) with an Earnings ESP of +12.77% and a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>