What's Coming For Netflix, Yahoo And Other Internet Earnings?

In a report rolled out Wednesday, MKM Partners’ Managing Director Rob Sanderson looks into Internet companies ahead of earnings and asks: “Will Breadth in Leadership Return In 2H?”

The analyst notes that investor interest toward the wider Internet sector has been falling over the year. Google Inc GOOGL GOOG has been a severe laggard, having returned about 2 percent year-to-date, versus the Nasdaq’s 3.69 percent surge. On the other hand, Facebook Inc FB’s performance has ameliorated over the past couple of weeks.  

Sanderson believes that “Better 2H performance for GOOGL, along with a follow-through for FB could lead to a significant 2H sentiment reversal for the group.” Moreover, he adds, currency headwinds (to which Internet stocks are largely exposed) should start to decline in the third quarter.

Some Previews

MKM previews earnings reports scheduled for the next couple of weeks.

Netflix, Inc. NFLX will announce its second quarter financial results next Wednesday. This will be the first report with an adjusted share count, post-split.

While sentiment is bullish, the experts see consensus expectations as “somewhat conservative.” They expect a “cautious 3Q guide for domestic additions following last year's miss and believe this is reflected in consensus,” but think international subscriber additions will come in above the Street’s expectations – and thus anticipate a guide up.

The key metric the firm is looking at is paid subscriber additions, which they estimate will come in at 650,000 in the U.S. and 2.2 million internationally, with third quarter guidance of 800,000 and 2.3 million.

Consolidated earnings are expected at $0.28 per share on revenue of $1.65 billion.

For its part, Yahoo! Inc. YHOO is scheduled to report its earnings on Tuesday, and MKM expects “an in-line quarter with 3Q guidance in the range with relatively weak expectations.”

The analysts anticipate the focus of the call to be:

1) The tax status of the Alibaba Group Holding Ltd BABA spin

2) The relation between the rate of decline in PC-display and growth in MaVeNS businesses

3) “Revenue share/ TAC on new deals and recent search agreement with ORCL” 4) “Testing of search monetization on GOOG”

The firm expects adjusted EBITDA of $245 million, in line with guidance but below consensus of $250 million.