Back to top

Netflix Looks Solid Ahead of Q4 Earnings

Read MoreHide Full Article

Netflix, Inc. (NFLX - Free Report) currently has over 130 million paid subscribers across the globe, along with a slew of Television shows including original series and featured films. The streaming giant’s revenues totaled $11.6 billion in the first nine months of fiscal 2018, primarily driven by higher subscribers in the United States and international markets.

Market pundits strongly expect an earnings beat for Netflix in its fourth-quarter release, after the closing bell on Jan 17.

Netflix to Benefit From Healthy Subscriber Growth

Solid subscriber additions are widely expected to enhance Netflix’s long-term prospects. The company expects to have added 7.6 million paid subscribers in the fourth quarter, which includes 1.5 million in the United States and 6.1 million in international markets. Thanks to the expansion in subscriber base, the company’s management now expects earnings of 23 cents per share on $4.2 billion revenues.

By ensuring original content on its platform, Netflix has been expanding its subscriber base for quite some time. The suspense thriller “Bird Box” is likely to have driven subscriber numbers in the fourth quarter. A choose-your-own-adventure film, “Black Mirror: Bandersnatch” is also expected to be a hit.

Can Anyone Catch Up With Netflix in Streaming?

The Walt Disney Company (DIS - Free Report) , with its newly-acquired Fox assets, is fast catching up with Netflix’s streaming business. Needless to say,, Inc. (AMZN - Free Report) , Apple Inc. (AAPL - Free Report) and HBO are pouring cash into the streaming business.

But, Netflix gives importance to retaining subscribers in the new media environment. After all, the mantra is not only to grab attention on a particular night but to have a dedicated subscriber base. This has lent Netflix an upper hand over competitors.

Netflix’s Price Increases Signal Confidence in Pricing Power

Netflix, for now, has raised new domestic subscription prices in the range of 12.5% to 18%, and will put it into effect within the next couple of months. This price change should, no doubt, reflect on fourth-quarter revenues. At the same time, such price increases show the company’s confidence in its pricing power. Needless to say, companies that have the ability to raise prices higher than inflation without affecting sales figures are, undoubtedly, great businesses.

Berkshire Hathaway Inc. (BRK.B - Free Report) CEO Warren Buffett said that “the single most important decision in evaluating a business is pricing power. If you've got the power to raise prices without losing business to a competitor, you've got a very good business.”

Netflix Will Have a Good Earnings Report

With subscriber count expected to have expanded in the fourth quarter and Netflix’s streaming service far ahead of competition, the earnings numbers should surely impress. Netflix, a Zacks Rank #3 (Hold) company, currently has an Earnings ESP of +2.00%. This is Zacks’ proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Netflix, Inc. Price and EPS Surprise


Netflix, Inc. Price and EPS Surprise

Netflix, Inc. price-eps-surprise | Netflix, Inc. Quote

Upbeat earnings performance, no doubt, will lead to a rally in the share price. Thus, the company’s expected growth rate for the current year is a whopping 110.4%, way ahead of the Broadcast Radio and Television industry’s estimated rise of 6.9%. In fact, the company has outperformed the broader industry in the last one-year period (+61.5% vs +15.4%).

Various other analysts have also upgraded Netflix before fourth-quarter earnings results. Recently, UBS analyst Eric Sheridan raised his price target on the company to $410 from $400. The Goldman Sachs Group, Inc. (GS - Free Report) echoed its price target of $400. Goldman analyst Heath Terry said that Goldman “believes that Netflix’s investment in content, technology, and distribution should drive subscriber growth well above consensus expectations globally.”

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

More from Zacks Analyst Blog

You May Like