Will Netflix's Q4 Pull The Company Out Of Its Slump?

Netflix, Inc. NFLX is expected to report fourth quarter earnings on Tuesday, January 20 after market close. The Golden Globes put all doubts aside regarding the feasibility and credibility of streaming television shows. On January 11th, Kevin Spacey won an award for his role in Netflix’s original series House of Cards. Additionally, Amazon.com, Inc. AMZN original series Transparent took home the award for Best Television Series. It looks like online television series have earned their credibility and are in the big leagues.

Netflix streams television shows and movies instantaneously to over 50 countries throughout North America, South America, and parts of Europe. The company most recently announced plans to expand the service to Australia and New Zealand, which will begin in March. Rumors are beginning to circulate that Netflix has plans in the works to expand into Asia. As of October 2014, the streaming website has more than 57 million subscribers.

Related Link: Stifel Analyst Explains Netflix Upgrade, Compares It To HBO

Netflix shares have been dropping since the company released its second quarter earnings in July. That report posted a satisfactory net profit, but growth came up short. In the third quarter, Netflix added 3 million subscribers, short of their estimate of 3.7 million. Shares have yet to recover from the plunge. Netflix shares currently have a 52-week high of $489.29 and a 52-week low of $299.50. The company’s stock last closed at $324.24 on January 14th.

On Thursday, January 15, analyst David Miller of Topeka Capital reiterated a Buy rating and a $494 price target on Netflix. David Miller made the rating in anticipation of the fourth quarter report being released next week. He noted, “While overall margin improvement within the U.S. Streaming side of the business will definitely get some play [in this report], all eyes will really be on the international sub result, which by our calculations, should come in at 2.17mm.”

The analyst notes that this growth represents a 24.7% year-over-year increase, and is thanks to “a combination of strong traction in the UK and Canada, continued uplift in Latin America, but also initial sub adds out of the new markets launched at the beginning of last quarter, which are France, Luxembourg, Belgium, Switzerland, Germany, and Austria.”

David Miller has a 64 percent overall success rate recommending stocks with a +11.3 percent average return per recommendation.

Separately on January 14, analyst Gregory Miller of Canaccord Genuity maintained a Buy rating on Netflix with an unchanged price target of $450. Gregory Miller anticipates the fourth quarter report to be “relatively in line with” expectations. In the domestic segment, he noted:

"We look for slowing growth… and sequential pressure on contribution margin similar to Q4/13.” In the international segment, he noted, “we will look for early signs of progress regarding key new market launches in late Q3/14, which we expect to weigh significantly on overall contribution margin during Q4/14.” Looking forward, the analyst noted, “With slowing growth in US net adds feeding investor concern regarding the near- and long-term penetration opportunity, we expect management’s guidance for Q1/15 domestic net adds will be in focus.”

Gregory Miller has a 67 percent overall success rate recommending stocks with a +3 percent average return per recommendation.