Netflix Earnings Preview Q3 2015

  • Netflix is expected to report Q3 FY 15 earnings on Oct 14 after market close.
  • The company is expected to report strong subscriber growth but lower profits due to growing content costs.
  • Investors are, however, more likely to focus more on Netflix's subscriber growth and give the company a free pass on thinner profits.

Netflix (NASDAQ:NFLX) is expected to report third quarter earnings on Oct. 14 after closing bell. The video streaming giant is expected to report revenue of $1.751 billion, GAAP earnings of $0.08 and adjusted EPS of $0.10. Although Netflix’s management had guided for adjusted earnings of $0.07. Netflix has managed to beat consensus earnings estimate for the last four quarters with a healthy average earnings beat of 26% and many analysts expect the company to extend this streak.

Quarterly Earnings Surprise History

Fiscal
Quarter End
Date
Reported
Earnings
Per Share
Consensus
EPS* Forecast
%
Surprise
Jun2015 07/15/2015 0.06 0.05 20
Mar2015 04/15/2015 0.11 0.1 10
Dec2014 01/20/2015 0.1 0.06 66.67
Sep2014 10/15/2014 0.14 0.13 7.69

Meanwhile, Netflix stock continues to march forward undeterred by the market downturn. Netflix stock is up 128% YTD.

Netflix YTD Share Returns
NFLX stock chart

Source:Netflix Stock Price Data by amigobulls.com

Subscriber growth expected to impress

The main reason why Netflix’s stock has been doing so well is due to the company’s impressive subscriber growth. Netflix’s management had guided for at least 1.15 million domestic subscriber adds during the quarter, or 18% more than the company added during last year’s comparable quarter, which will bring Netflix’s total domestic subscribers to 43.47 million. Meanwhile, Netflix expects international subscriber growth to continue outpacing domestic growth. The company expect international subscriber adds to clock in at 2.4 million, 17.6% better than last year’s comparable period. This will bring Netflix’s international subscriber base to 25.65 million.

Netflix has been making strong inroads into new international markets. The company has entered several key markets over the past 12 months including Japan, Germany, France, Benelux, Australia, New Zealand, Italy, Spain and Portugal.

Rising content costs to pressure margins

Netflix has been investing heavily in original content as it seeks to cement its position as the world’s leading video streaming company. These investments have been eating into the company’s already thin margins causing Netflix earnings to decline. The expected $0.08 EPS actually represents a huge 48% Y/Y decrease compared to a healthy 24% growth in revenue.

Going by current industry trends, Netflix might have to pay more for its content going forward. There is growing resentment building up with Netflix’ old media rivals which are increasingly viewing Netflix as a rival. During the September conference circuit, several media executives notably at 21st Century Fox and Time Warner talked about a need for the companies to rethink their strategy when licensing content to Netflix. These companies have increasingly been preferring to license content to Hulu instead of Netflix due to what they termed as Hulu’s better compensation. Additionally, the cable companies have been blaming Netflix for the rampant cord-cutting going on in American homes, as well as falling TV ratings.

Netflix recently announced a $1 price increase for its base plan to $9.99 per month, which some analysts see as a demonstration of Netflix’s pricing power while others are less sanguine and view is as a sign that Netflix is feeling the pinch from rising content costs.

Meanwhile Netflix has to contend with increasing competition not only from Hulu and Amazon Prime video but also from Apple (NASDAQ:AAPL) which is reportedly working on a streaming video service.

Going after the low-hanging fruit

Netflix investors are, however, not likely to be worried about the company’s growing content costs. Netflix has been recording good success going after international subscribers which is an easy growth path for the company. International subscriber growth has continued to outpace domestic growth. The good part is that Netflix has plenty of room to run before it can become a truly global player. For the average large Internet company, international revenue accounts for around 70% of overall revenue whereas for Netflix that figure is still a lowly 30%. While Netflix earnings may experience pressure, as long as the company keeps adding subscribers at a healthy clip, investors will continue being happy with Netflix.

Show Full Article
5 2
Is this article helpful ?    


Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

show more

Comments on this article and NFLX stock

Do share this awesome post