Netflix (NFLX - Free Report) is scheduled to release its first quarter fiscal 2019 financial results on Tuesday, April 16. Shares of Netflix have soared nearly 40% this year as the streaming TV power roars back, along with the likes of Facebook (FB - Free Report) . But the question is should investors think about buying NFLX stock heading into Q1 earnings?
Netflix helped spark the streaming TV age that has seen Amazon (AMZN - Free Report) spend billions on original content. The company’s success also encouraged Disney (DIS - Free Report) , Apple (AAPL - Free Report) , and others to dive into the streaming market. Despite the fact that Netflix will soon face a more competitive environment, the company looks poised to remain a powerful force in the space for years to come.
The Los Gatos, California-headquartered firm is currently the largest of the big U.S. streaming powers. The company closed Q4 with over 139 million paid memberships, up over 25% from the year-ago period’s 110.6 million. Meanwhile, Amazon boasts roughly 100 million Prime subscribers. However, a Reuters report suggests that only 26 million of those U.S. users watch content on Amazon Prime Video, which could be seen as either good or bad for the e-commerce giant. The other major player, Hulu, said its subscriber totals jumped 48% in 2018 to 25 million.
Looking ahead, Netflix’s international growth is set to play a bigger role as the U.S. market becomes increasingly saturated. The streaming service is already available in over 190 countries, with China the only major untapped market. Netflix has said that it “continues to explore options for providing the service” in China. Yet the firm will likely have a difficult time entering the market given the country’s censorship concerns.
Investors should also note that Netflix reported negative cash flows of $3 billion last year and executives expect to report similar levels in 2019. However, Netflix and CEO Reed Hastings expect that cash flows will improve going forward, even as it spends billions of dollars on new original TV shows and movies.
Q1 Outlook & Earnings Trends
Netflix’s Q1 revenue is projected to jump 21.4% to hit $4.49 billion, based on our current Zacks Consensus Estimate. This would represent a slowdown from last quarter's 27.4% revenue growth. More specially, our NFM estimates call for the company’s international streaming revenue to surge over 32% to hit $2.35 billion. As some might have expected, this would fall below last quarter’s 36% expansion.
NFLX’s domestic streaming revenue is expected to pop roughly 14% to hit $2.07 billion. Last quarter, U.S. streaming sales climbed over 22%. Meanwhile, Netflix itself expects to add 8.9 million paying subscribers in Q1 to reach 148.16 million. And the company’s ability to beat or surpass its own subscriber estimate could determine how NFLX stock trades in the near term.
Moving on, the company’s adjusted first-quarter earnings are projected to dip 10.9% to $0.57 per share. Despite the negative Q1 outlook, investors might be happy to see that the streaming firm’s full-year 2019 earnings are projected to soar 48.5% to reach $3.98 a share.
On top of that, the company has seen some mixed earnings estimate revision activity recently. But, investors should note that the company has a solid history of quarterly earnings beats, which includes a 16% average surprise over the trailing four periods.
Clearly, Netflix’s top-line growth is expected to come in below Q4’s expansion. This might seem obvious to some as top-line growth often becomes harder as companies grow. Still, investors will have to wait to see how Wall Street reacts if our estimates prove correct.
On top of that, NFLX’s price/sales ratio of 10.1 is far worse than its industry’s 1.4 average. The company’s price/earnings ratio also remains sky high at 91. Netflix stock rested at roughly $366.67 per share through late afternoon trading Thursday. This gives shares of NFLX 13% runway before they reach their 52-week high.
Netflix is currently a Zacks Rank #3 (Hold) that sports “F” grades for Value, Growth, and Momentum in our Style Scores system. Therefore, it might be a good idea to keep an eye on NFLX and see what the company’s actual Q1 metrics look like before buying, especially since so much will be determined by user totals.
Netflix is scheduled to release its Q1 2019 financial results after the closing bell on Tuesday, April 16.
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