Netflix's Earnings Could be Pivotal
Netflix (NASDAQ: NFLX) is expected to report earnings for its fourth quarter after the bell on Wednesday. Consensus analyst estimates call for a loss per share of $0.60 on revenues of $934.37 million.
The earnings report will likely be significant if for nothing other than the move shares have had over the last few months. Since September, shares have nearly doubled, trading up from about $53 to around $97 on Tuesday.
Most of the move might have been based largely on a shift in sentiment.
Legendary activist investor Carl Icahn took a near 10 percent stake in the company and vowed to see it sold. Critics have compared Icahn's Netflix investment to his once failed experiment with Blockbuster. Still, Icahn believes that Netflix's service would offer great value to another company.
Janney Montgomery Scott's Netflix analyst Tony Wible made headlines last week when he turned positive on the stock, upgrading it to a Buy from a Neutral. Wible had been a critic of Netflix for years.
Wible built his bull case on the recent deal with Disney (NYSE: DIS) that will give Netflix Disney content in the future. He stated that the deal with Disney might be used to facilitate deals with other content providers, including Sony (NYSE: SNE).
Wible argued that this might be indicative of a broader shift in the content universe, where as Netflix pulls subscribers from traditional cable providers, the content providers themselves are more likely to give Netflix favorable deals.
Wible also cited the broadly bearish sentiment (Netflix has a short interest near 25 percent) and competition that was largely overhyped.
Not everyone agrees with Wible, however.
Eric Wold, B. Riley & Co.'s Netflix analyst, has a Sell rating on the stock and a $45 price target. Wold believes that the stock could drop after earnings.
Wold told Benzinga he was concerned with the company's content costs. In contrast to Wible, Wold believes that the Disney deal could burn Netflix shareholders, who might even have to sit through some capital raises.
“When Netflix lost their deal with Starz, they downplayed the importance of Disney,” Wold said. “Netflix said Disney was only about 2 percent of streamed content.”
Michael Pachter of Wedbush is also skeptical of Netflix's content costs. He has an Underperform rating and $45 price target on Netflix.
“Why was everyone so dismissive when they lost Starz?” Pachter told Benzinga. “Starz was Disney plus Sony plus original content. Now they are getting back Disney, but paying more for it.”
Still, Pachter doesn't believe this quarter will be one for the bears to celebrate. “[Netflix] could go up after earnings. But it's still a house of cards.”
Shares of Netflix traded near $97 on Tuesday, down about 2 percent.
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