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Netflix (NFLX) Up 11.3% 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 11.3% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to its next earnings release, or is NFLX due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Recent Earnings
Netflix’s fourth-quarter 2017 earnings of 41 cents per share came in line with the Zacks Consensus Estimate but grew a whopping 173.3% on a year-over-year basis. Revenues of $3.286 billion increased 32.6% year over year and came ahead of the consensus estimate of $3.281 billion.
The company added 8.3 million subscribers (highest in history), much more than the expected 6.3 million, which shows how attractive its portfolio is to consumers.
Netflix’s focus on international expansion and original regional content has paid off, with 6.36 million overseas net new additions in the quarter. The company reported profit from the international operations this quarter as well.
The fourth quarter had a strong programming slate, with new seasons of popular shows like Stranger Things, Black Mirror and The Crown and new releases like Godless, Marvel’s The Punisher and Mindhunter. The company’s portfolio of original films witnessed significant improvement with the addition of Bright, starring Will Smith and Joel Edgerton, to its platform this quarter.
The company’s effort to strengthen regional programming is a key growth driver. An original German series named Dark, the third season of Club de Cuervos and The Day I Met El Chapo, both from Mexico, Italian-language thriller series Suburra and UK-based Jack Whitehall: Travels with My Father are helping it draw more international subscribers.
Segment Revenues
International Streaming revenues (47.2% of total revenue) soared 63.5% year over year to $1.55 billion driven by an increase in paid members.
Domestic Streaming revenues (49.6% of total revenue) improved 16.2% from the year-ago quarter to about $1.63 billion.
However, the DVD business continues to be in trouble, with revenues (3.2% of total revenue) declining 17.3% year over year to $105 million.
Subscriber Base
At the end of the quarter, Netflix's paid streaming members across the globe were 110.64 million, up from 89.09 million in the prior-year quarter. Netflix now has 117.58 million subscribers globally.
In the Domestic Streaming segment, Netflix’s subscriber base totaled 54.75 million, up from 49.43 million in the year-ago quarter. Paid members increased to 52.81 million from 47.91 million in the year-ago period.
In the International Streaming segment, the company recorded 62.83 million members compared with 44.37 million in the prior-year quarter. Paid members were 57.83 million, up from 41.19 million in the year-ago quarter.
Margins
Consolidated contribution profit margin (revenues minus the cost of revenues and marketing cost) was 23.1% compared with 21.8% in the year-ago quarter.
Consolidated operating income grew 59.4% year over year to $245.3 million. Consolidated operating margin increased 120 basis points (bps) to 7.5%.
Balance Sheet
Netflix had $2.823 billion in cash and cash equivalents as of Dec 31, 2017 compared with $1.746 billion as of Sep 30, 2017.
Cash used in operations in the quarter was $487.96 million compared with $557.16 million used in operations in the prior-year quarter. The company reported free cash outflow of $523.8 million.
Outlook
For the first quarter of 2018, management forecasts earnings of 63 cents per share.
Domestic and international streaming revenues are expected to be $1.807 billion and $1.780 billion, respectively. Total streaming revenues are expected to be $3.587 billion while total revenue, including the DVD business, is anticipated to be $3.686 billion.
Management expects to add 1.45 million subscribers in the domestic streaming segment and 4.90 million subscribers in the international segment.
For fiscal 2018, the company forecasts operating margin of 10%, indicating an expansion of 300 bps from the prior year.
Netflix also provided an estimate for marketing spend in 2018 in the range of $1.3-$2 billion. The company plans to spend $7.5-$8 billion on content this year.
Netflix plans to release 30 international original series in 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter compared to one lower. While looking back an additional 30 days, we can see even more upward momentum. There have been eight moves up in the last two months. In the past month, the consensus estimate has shifted by 11.2% due to these changes.
At this time, NFLX has a poor Growth Score of F, however its Momentum is doing a lot better with a C. However, the stock was also allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall,the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, NFLX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Netflix (NFLX) Up 11.3% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Netflix, Inc. (NFLX - Free Report) . Shares have added about 11.3% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to its next earnings release, or is NFLX due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Recent Earnings
Netflix’s fourth-quarter 2017 earnings of 41 cents per share came in line with the Zacks Consensus Estimate but grew a whopping 173.3% on a year-over-year basis. Revenues of $3.286 billion increased 32.6% year over year and came ahead of the consensus estimate of $3.281 billion.
The company added 8.3 million subscribers (highest in history), much more than the expected 6.3 million, which shows how attractive its portfolio is to consumers.
Netflix’s focus on international expansion and original regional content has paid off, with 6.36 million overseas net new additions in the quarter. The company reported profit from the international operations this quarter as well.
The fourth quarter had a strong programming slate, with new seasons of popular shows like Stranger Things, Black Mirror and The Crown and new releases like Godless, Marvel’s The Punisher and Mindhunter. The company’s portfolio of original films witnessed significant improvement with the addition of Bright, starring Will Smith and Joel Edgerton, to its platform this quarter.
The company’s effort to strengthen regional programming is a key growth driver. An original German series named Dark, the third season of Club de Cuervos and The Day I Met El Chapo, both from Mexico, Italian-language thriller series Suburra and UK-based Jack Whitehall: Travels with My Father are helping it draw more international subscribers.
Segment Revenues
International Streaming revenues (47.2% of total revenue) soared 63.5% year over year to $1.55 billion driven by an increase in paid members.
Domestic Streaming revenues (49.6% of total revenue) improved 16.2% from the year-ago quarter to about $1.63 billion.
However, the DVD business continues to be in trouble, with revenues (3.2% of total revenue) declining 17.3% year over year to $105 million.
Subscriber Base
At the end of the quarter, Netflix's paid streaming members across the globe were 110.64 million, up from 89.09 million in the prior-year quarter. Netflix now has 117.58 million subscribers globally.
In the Domestic Streaming segment, Netflix’s subscriber base totaled 54.75 million, up from 49.43 million in the year-ago quarter. Paid members increased to 52.81 million from 47.91 million in the year-ago period.
In the International Streaming segment, the company recorded 62.83 million members compared with 44.37 million in the prior-year quarter. Paid members were 57.83 million, up from 41.19 million in the year-ago quarter.
Margins
Consolidated contribution profit margin (revenues minus the cost of revenues and marketing cost) was 23.1% compared with 21.8% in the year-ago quarter.
Consolidated operating income grew 59.4% year over year to $245.3 million. Consolidated operating margin increased 120 basis points (bps) to 7.5%.
Balance Sheet
Netflix had $2.823 billion in cash and cash equivalents as of Dec 31, 2017 compared with $1.746 billion as of Sep 30, 2017.
Cash used in operations in the quarter was $487.96 million compared with $557.16 million used in operations in the prior-year quarter. The company reported free cash outflow of $523.8 million.
Outlook
For the first quarter of 2018, management forecasts earnings of 63 cents per share.
Domestic and international streaming revenues are expected to be $1.807 billion and $1.780 billion, respectively. Total streaming revenues are expected to be $3.587 billion while total revenue, including the DVD business, is anticipated to be $3.686 billion.
Management expects to add 1.45 million subscribers in the domestic streaming segment and 4.90 million subscribers in the international segment.
For fiscal 2018, the company forecasts operating margin of 10%, indicating an expansion of 300 bps from the prior year.
Netflix also provided an estimate for marketing spend in 2018 in the range of $1.3-$2 billion. The company plans to spend $7.5-$8 billion on content this year.
Netflix plans to release 30 international original series in 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter compared to one lower. While looking back an additional 30 days, we can see even more upward momentum. There have been eight moves up in the last two months. In the past month, the consensus estimate has shifted by 11.2% due to these changes.
Netflix, Inc. Price and Consensus
Netflix, Inc. Price and Consensus | Netflix, Inc. Quote
VGM Scores
At this time, NFLX has a poor Growth Score of F, however its Momentum is doing a lot better with a C. However, the stock was also allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall,the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, NFLX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.