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Netflix (NFLX) to Post Q2 Earnings: What's in the Cards?

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Netflix (NFLX - Free Report) is set to report second-quarter 2019 results on Jul 17.

Notably, the company’s earnings have beaten the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 23.9%.

Netflix had 148.86 million subscribers globally at the end of the first quarter. Management expects to add 0.3 million and 4.7 million subscribers in domestic and international markets, respectively, in the to-be-reported quarter.

Moreover, Netflix forecasts second-quarter 2019 earnings of 55 cents per share. The Zacks Consensus Estimate for earnings has been steady at 56 cents over the past 30 days.
 

Netflix, Inc. Price and EPS Surprise

Netflix, Inc. Price and EPS Surprise

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

 

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

Content Strength: Key Catalyst

Netflix has returned 41.8%, year to date, compared with the S&P 500’s rally of 17.8%. This outperformance can be attributed to the company’s surging subscriber base.

The company’s robust content portfolio, including originals (both movies and TV shows), has been a major growth driver. Further, the company’s effort to offer content catering to various genres has been a key catalyst in driving user engagement.

Moreover, the success of Murder Mystery surely validates Netflix’s evolution as a major movie studio. Additionally, the growing involvement of well-known Hollywood stars definitely makes the movies and shows on the platform more attractive.

These positive trends are expected to drive the top line in the to-be-reported quarter. Netflix expects total revenues, including the DVD business, to be $4.93 billion, up 32% sequentially, excluding unfavorable impact of currency.

Stiff Competition Can Play Spoilsport

However, stiff competition from Disney’s (DIS - Free Report) Hulu, YouTube, AT&T’s (T - Free Report) HBO and Amazon Prime is likely to make it challenging for Netflix to maintain the subscriber addition growth rate in the second quarter.

Notably, HBO streamed the final season of its widely popular series Game of Thrones during the quarter (Apr 14 to May 19). Although Netflix considers video game Fortnite as its main competitor, HBO’s solid content portfolio is emerging to be a major threat.

Focus on Content Spending Commentary

Netflix’s commentary over the increasing competition in the streaming space and original content spending will be keenly followed by investors this earnings call.

Notably, Apple and Disney provided details about their upcoming streaming ventures, Apple TV+ and Disney+ during the to-be-reported quarter. Most recently, AT&T announced HBO Next, its upcoming streaming service.

Moreover, Netflix has been planning to put a brake on original content spending, particularly for big-budget projects, which lack viewership. This strategy is expected to help reduce cash burn rate.

Notably, Netflix’s streaming content obligations were $18.9 billion at the end of the first quarter.

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 carries a Zacks Rank #3 and has an Earnings ESP of +5.99%. 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 another stock you may consider, as our proven model shows that it has the right combination of elements to post an earnings beat this quarter.

Comcast (CMCSA - Free Report) has an Earnings ESP of +2.12% and carries a Zacks Rank #3. The company is set to report earnings on Jul 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

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