Netflix Expectations 'Could Hardly Be Higher'

Analysts at FBR released a report today that outlined their take on Netflix Inc NFLX ahead of the company’s Q1 earnings report due out after the closing bell. Analysts believe that expectations for Netflix are sky-high, a potentially dangerous scenario for shareholders.

Encouraging tweet
If earnings expectations are overly optimistic this quarter, Netflix CEO Reed Hastings has only himself to blame. Just last week, Hastings tweeted that Netflix had 10 billion streamed hours in Q1, a number that represents 1.9 hours per average subscriber. Analysts add that this number also represents a 30 percent year-over-year increase from 1Q14.
According to the report, Netflix’s 1.9 hours per subscriber is approaching the amount of time that viewers spend watching traditional TV.

Market reflecting expectations
High expectations for Netflix are also reflected in the stock’s share price, which is up more than 46 percent in the past six months. Analysts point out that, despite the company’s strong performance, the stock’s current price to earnings ratio (P/E) of 179 leaves very little room for missteps.

Other contributing factors
In addition to Hasting’s tweet, Netflix recently made a proxy filing for its annual shareholder meeting that included a vote to increase the stock's share count in preparation for a split. News of a possible stock split coupled with a slew of analyst upgrades and price target hikes have also contributed to the run-up in Netflix’s share price ahead of earnings.

Projections
FBR is forecasting earnings per share of $0.59 for Q1, slightly below the $0.60 consensus estimates. FBR has a Market Perform rating on Netflix and a $400 target for the stock.