Netflix Q4 Earnings Preview: Show Time As Curtains Come Down On 2016

Ahead of the company's fourth-quarter results, investors are likely to focus on subscriber additions statistics, a key metric for gauging its success. Even as rumors swirl around that the company could be a takeover target, it is proving to be a force to reckon with, going by the stellar showing by its stock.

Netflix is scheduled to release its fourth-quarter results after the market close on Wednesday.

Expectations

Analysts, on average, expect the company to report earnings per share of $0.13 per share, up from $0.10 per share last year. In the four quarters leading up to the fourth quarter of 2016, the company outperformed market expectations in three quarters but missed estimates in one (Q42015).

Analysts expectations have not moved since the start of the quarter, having remained at $0.13 since 90 days before.

Revenues are expected at $2.47 billion, up an estimated 35.20 percent year-over-year.

In October, Netflix guided fourth-quarter earnings to $0.13 per share.

Bryan Kraft from Deutsche Bank said in a recent note that his outlook now reflects a higher return on Netflix's planned content investments based on international strength in the company's original content including "Luke Cage," "The Crown," "Gilmore Girls" and "Fuller House."

Accordingly, the analyst revised his fourth quarter international Paid Net Adds to 4.35 million, which is higher than the company's own guidance of 3.35 million. Kraft's full fiscal year 2017 paid net add forecast was also boosted by 3.4 million users to 14.9 million.

Recent Performance

In the third quarter, Netflix reported forecasting-beating earnings and revenues, buoyed by strong subscriber growth. The company said it added 3.57 million subscribers in 2016, with the domestic and international break-up at 370,000 and 3.2 million.

Forward Outlook

For the first quarter, analysts estimate earnings of $0.18 per share on revenues of $2.60 billion, up solidly from $0.06 per share last year. Analysts expect the company to report earnings per share of $0.94 for fiscal year 2017, more than double of the $0.41 per share estimated for 2016. Revenues are estimated to increase 25.20 percent to $11.05 billion.

Wall Street's Views On Netflix

• Mizuho Securities: Raised rating to Buy with a $152 price target.
• Deutsche Bank: Raised rating to Hold from Sell, with a $110 price target, up from $90.
• Morgan Stanley: Maintains rating at Overweight, with a $150 price target.

Of note, Deutsche Bank sees Netflix's international paid subscriber total to reach 71 million in 2018, 8 million higher than what the firm had previously forecast.

Stock Performance

After a stellar showing in 2015, Netflix languished for much of 2016 on concerns about slowing subscriber growth. The stock that galloped in 2015, advancing 170 percent to an all-time closing high of $130.93 levels in December 2015, came off these stratospheric levels in 2016.

However, Netflix picked up momentum post its third-quarter results and consolidated its gains thereafter and is currently at an all-time high, fueled by optimistic expectations concerning its fourth quarter.

For the year, the stock added 8.24 percent despite the lackadaisical showing for much of the year. In the fourth quarter, alone, the stock gained 19.89 percent.

Technically, the stock remains slightly overbought, as indicated by its 14-day relative strength index, currently at 67.39. That said, the fact that the stock's 50-day SMA (122.82) is above its 200-day SMA (104.49) suggests that there is no imminent threat to the trend.

The $127–$129 area could provide strong support for the stock in the eventuality of the investors turning bearish on the stock. An intermediate-term support is found around the $122 area.