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Netflix (NFLX) to Report Q4 Earnings: What's in the Cards?

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Netflix (NFLX - Free Report) is set to report fourth-quarter 2018 results on Jan 17.

Notably, the company’s earnings have beaten the Zacks Consensus Estimate in three of the trailing four quarters, delivering average positive surprise of 9.7%.

In the last reported quarter, the company’s earnings of 89 cents per share surpassed the Zacks Consensus Estimate by 21 cents. The figure was much better than 29 cents reported in the year-ago quarter.

Revenues of almost $4 billion surpassed the consensus mark of $3.98 billion and surged 34% year over year, driven by solid streaming revenues that jumped 36% from the year-ago quarter.

Netflix had more than 137 million subscribers globally at the end of the third quarter. The company expects to add 1.8 million and 7.6 million subscribers in domestic and international markets, respectively, in the fourth quarter.

Moreover, Netflix forecasts earnings of 23 cents per share. The Zacks Consensus Estimate has remained steady at 25 cents over the past 30 days.

Netflix, Inc. Price and EPS Surprise


Netflix, Inc. Price and EPS Surprise | Netflix, Inc. Quote

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

Factors to Consider

Netflix’s focus on originals — both movies and TV shows — has been the key catalyst behind the company’s surging subscriber base. Further, Netflix is diversifying its content portfolio and also working on projects across India, Mexico, Spain, Italy, Germany, Brazil, France, Turkey and the entire Middle East.

The impressive content quality along with Netflix’s strategy change to give its original movies more theatrical exposure helped the company win awards and accolades in 2018. Notably, Roma, Bird Box and The Ballad of Buster Scruggs were the three original movies that hit the theaters first and were later released on the streaming platform.

Roma was announced the best movie of 2018 by the New York Film Critics Circle and won the Golden Lion Award. It also won the award for best foreign-language film at this year’s Golden Globes.

Further, in the television category, Netflix’s The Kominsky Method won the Golden Globes for best comedy or musical. The streaming giant won five Golden Globes altogether across movies and televisions, leading all studios in the race.

Moreover, Bird Box recorded highest viewership for any movie in the seven-day period (Dec 21-27), per Netflix, which received support from Nielsen. Per data from the ratings company, quoted by Variety, almost 26 million unduplicated users viewed Bird Box during the period.

The success of Roma and Bird Box surely validates the company’s evolution as a major movie studio. Moreover, the growing involvement of well-known Hollywood stars definitely makes the movies and shows more attractive. Further, the company’s endeavor to offer content catering to various genres has been a key catalyst in driving user engagement.  

Nevertheless, increasing competition from YouTube, HBO and Amazon (AMZN - Free Report) is expected to hurt subscriber addition growth rate. YouTube, which remains a dominant player in the streaming space, is pushing aggressively into original content to double its user base and adoption rate. Moreover, the entry of players like Apple (AAPL - Free Report) and Disney will further intensify competition.

Further, due to high costs accompanying its rapid international expansion and production of original content, the company’s bottom line remains under threat. High debt level also remains a concern. Notably, Netflix’s streaming content obligations were $18.6 billion at the end of the third quarter.

Additionally, the company continues to burn cash. In the third quarter, free cash outflow was $859 million compared with $465 million in the year-ago quarter. For 2018, the company continues to expect free cash outflow of $3-$4 billion.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

Netflix has a Zacks Rank #3 and an Earnings ESP of -10.20%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

A Stock to Consider

Here is a stock you may consider, as our proven model shows that it has the right combination of elements to post an earnings beat this quarter.

Twitter (TWTR - Free Report) has an Earnings ESP of +27.32% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. The company is set to report on Feb 7.

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