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Netflix Preview: Despite Positive International And Unique Content Growth, Lackluster EPS May Be Ahead

Netflix Preview: Despite Positive International And Unique Content Growth, Lackluster EPS May Be Ahead
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On Tuesday, Netflix, Inc. (NASDAQ: NFLX) will report its Q4 results. Analysts at Macquarie Research expect the discussion to "focus on the global launch" from last week.

Macquarie Research maintained a Neutral rating with a price target of $113.00 for Netflix.

Ratings And Justification

"For Q4 we are modelling EPS of $0.01 on a base of 44.6 million US and 26.2 million international subs, both low end of guidance. US subs could be negatively affected by some elasticity of demand from its recent $1 price increase on new higher-tier subs, and on churn which Netflix said in Q3 was due to the introduction of chip-based credit and debit cards which led to involuntary drop-offs in automated payments; we have not heard this from other subscription services," the firm noted.

"Management guides to 'about break-even' 2016 net income, but consensus EPS is $0.27, so there could be downside to estimates," the firm commented. Macquarie sees the company's earnings and target price revision to have "no change" to estimates.

Related Link: Netflix's Stock Is Lower Into Earnings For The First Time In 10 Quarters

Conquering The Globe

The firm also noted in their research note Tuesday that Netflix is now available in ~190 countries.

"International contribution margin is expected to remain at the 4Q 15E level of ~$125 million each Q given phasing of content purchases. The early-Jan launch should set Netflix up well for a 2H 16 sub ramp, to drive strong earnings growth in 2017," the firm commented.

Original Content

Macquarie sees Netflix as "competitively priced" and has "unique original content."

However, the firm noted, "Netflix is priced higher than its competitors and we believe lacks enough localized content at its current stage to do well."

Macquarie also believes that the company's broader success is dependent on offering lower pricing and downloads.

Image Credit: "Sunnyvale Netflix" by Coolcaesar at the English language Wikipedia. Licensed under CC BY-SA 3.0

via Wikimedia Commons.

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