What to watch in Netflix earnings report
Netflix (NFLX) is scheduled to report results of its third fiscal quarter after market close on October 16, with a conference call scheduled for 6:00 pm ET.
What to watch:
1. SUBSCRIBER FORECASTS, PRICE HIKE:
Netflix’s subscriber numbers are a closely-watched measure of the company’s growth trajectory. Last quarter, the company reported streaming net additions of 5.2M members, including second quarter U.S. additions of 1.07M and international additions of 4.14M members. Turning to its Q3 outlook, Netflix had forecast streaming net additions of 750,000 in the U.S. and international streaming net additions of 3.65M. On October 5, Netflix announced a price increase in the U.S., U.K., and other select markets, noting that the last time it had changed prices in the U.S. was 2015.
2. NO ‘UN-GRANDFATHERING’ THIS TIME:
A number of analysts have been bullish about Netflix shares since its price increase announcement, voicing support for its pricing power.
Morgan Stanley analyst Benjamin #Swinburne raised his price target on Netflix shares to $225 from $210, stating that he expects less of a churn impact from its new domestic price increases. He estimates that higher average revenue per user will more than offset the estimated near-term subscriber impact from the price increases and raised his 2018 revenue estimates to reflect that view.
Stifel analyst Scott #Devitt raised his price target on Netflix to $230 from $200 ahead of the company’s Q3 earnings report, saying he expects “healthy subscriber trends” in the quarter and for the current price increase to be much less disruptive than last year.
Meanwhile, Goldman analyst Heath #Terry believes Netflix consensus subscriber estimates are too low, particularly for Q4 and beyond. Terry’s second half net subscriber addition forecast of 13.9M is considerably above consensus of 10.8M, which he believes management is likely to exceed.
Terry also boosted Netflix’s price target to $235 from $200 on faster top-line growth and revised estimates and reiterated his Buy rating on the shares. 3.
BULLISH EVEN BEFORE HIKE:
Early this month, before the company announced its price increase plans, UBS and Piper Jaffray predicted that the company’s third quarter subscriber data would come in above expectations.
The positive momentum that Netflix saw in the second quarter continued at similar rates in the third quarter, wrote analyst Doug #Mitchelson on October 4, noting that the continued strong year-over-year subscriber growth “across almost all markets” came despite a downturn in the quality of the company’s original programming last quarter. He raised his Q3 U.S. net subscriber addition estimate by 100,000 to 850,000 and increased his Q3 international net add estimate by 300,000 to 3.95M.
Meanwhile, on the same day, Piper Jaffray‘s Michael #Olson said that after analyzing Google search trends he believed that Netflix’s international and domestic subscriber growth beat expectations last quarter.
The analyst said the search data suggests that the company’s U.S. subscriber base jumped 16% in Q3, while its foreign subscriber base surged by 71% year-over-year, both of which were better than the consensus growth outlook at that time.
Pre-earnings options volume in Netflix is 1.6x normal with calls leading puts 8:7. Implied volatility suggests the market is anticipating a move near 11.9%, or $23.79, after results are released. Median move over the past eight quarters is 10.6%.
NFLX last traded at $201.18, up $1.69.
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This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.