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Netflix (NFLX) Q1 Earnings to Benefit From Content Strength

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Netflix (NFLX - Free Report) is set to report first-quarter 2019 results on Apr 16.

Notably, the company’s earnings have beaten the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 15.9%.

Netflix had 139.26 million subscribers globally at the end of the fourth quarter. The company expects to add 1.6 million and 7.3 million subscribers in domestic and international markets, respectively, in the first quarter.

Moreover, Netflix forecasts first-quarter 2019 earnings of 56 cents per share. The Zacks Consensus Estimate for earnings has remained steady at 57 cents over the past seven days.

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

Factors to Watch Out

Netflix returned 17.7% in the past year, outperforming the S&P 500’s rally of 7.7%. The outperformance can be attributed to the company’s surging subscriber base.

 
 

Netflix’s robust content portfolio, including originals (both movies and TV shows), has been a major growth driver. Further, international expansions have been a key catalyst. 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.

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

However, increasing competition from Hulu, YouTube, HBO, Amazon Prime and Apple (AAPL - Free Report) is likely to make it challenging for Netflix to sustain subscriber addition growth rate. Moreover, the entry of media giants like Disney (DIS - Free Report) and Comcast (CMCSA - Free Report) , which have a strong content portfolio, is expected to further intensify competition.

To fend off competition and expand internationally, Netflix is spending aggressively on content. However, these keep the company’s bottom line under pressure.

Notably, Netflix’s streaming content obligations were $19.3 billion at the end of the fourth quarter. Additionally, the company continues to burn cash. Netflix expects free cash outflow rate in 2019 to be similar to that in 2018 ($3 billion), which is a major concern.

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 +0.44%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Another Stock to Consider

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

Comcast has an Earnings ESP of +5.28% and a Zacks Rank #2. The company is set to report on Apr 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

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The Walt Disney Company (DIS) - free report >>

Netflix, Inc. (NFLX) - free report >>

Comcast Corporation (CMCSA) - free report >>

Apple Inc. (AAPL) - free report >>

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