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Earnings Preview: Netflix Inc.

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Netflix Inc. (NFLX - Free Report) is scheduled to announce its fiscal third quarter 2012 results after the closing bell on October 23, 2012. Netflix has posted an average earnings surprise of 75.32% over the trailing four quarters. We don’t expect a major change in the earnings trend pattern for the current quarter.

Previous Quarter Highlights

Netflix reported a better-than-expected second quarter 2012 with earnings of 11 cents per share that was well ahead of the Zacks Consensus Estimate of 4 cents.

However, earnings plummeted from $1.26 per share reported in the year-ago quarter, despite a revenue increase of 12.8% in the second quarter 2012. Total number of subscribers jumped 17.8% year over year to 30.1 million.

For the third quarter 2012, management forecasts loss/earnings per share to be between (10 cents) to 14 cents.

For further details please see Netflix Beats Despite Y/Y Decline

Estimate Revision Trend

In the last 30 days, 2 out of 29 analysts covering the stock revised their estimate downward while only one upward revision was noticed. However, the Zacks Consensus Estimate for the third quarter 2012 remained at 5 cents per share, indicating that analyst revisions were mostly fine tuning in nature. Currently, the Zacks Consensus revenue estimate is pegged at $905.0 million for the third quarter.

Analysts prefer to remain on the sidelines due to a number of uncertainties related to the stock. According to analysts, increasing expenditure on international expansion as well as on new content acquisition is the major concern in the near term.


We expect to see a steady increase in subscriber base due to Netflix’s expanding portfolio of new and exclusive content. However, whether this incremental growth in subscriber base and related sales is enough to offset increasing costs is something investors will be eagerly watching in the third quarter results.

Moreover, incresing competition from the likes of (AMZN - Free Report) and HBO remains a major concern.

We have a Neutral recommendation on Netflix over the long term. Currently, Netflix has a Zacks #3 Rank, which implies a Hold rating in the short term.

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