Is Netflix (NFLX) Poised to Beat Q3 Earnings Estimates? - Analyst Blog

Netflix, Inc. (NFLX) is set to report third-quarter 2014 results on Oct 15. Last quarter, it posted a 0.22% surprise. The company's average earnings surprise for the trailing four quarters is 2.15%.  

Let's see how things are shaping up for this announcement.

Growth Factors This Past Quarter

We believe that Netflix's innovative show pipeline and robust on-demand viewing from international consumers are the major positives that will continue to boost its top line. The company's expansion into European nations like France, Germany, Austria, Switzerland, Belgium and Luxembourg are expected to be a major growth driver.

We believe that Netflix's engaging content library, which offers an eclectic mix of original and third-party shows is its biggest growth catalyst. The company continues to expand its content library by signing new deal with the likes of CBS Corp (CBS), Rainbow Studios, Dreamworks Animation, Mattel  and Walt Disney.

Although rising costs related to content and international expansion are a major headwind, we believe a fast-growing subscriber base will help drive Netflix's top line in 2014. Additionally, price increases (for both domestic and international new users) should help the company offset higher expenses in the near term.

Earnings Whispers?

Our proven model does not conclusively show that Netflix is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:  Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 91 cents. Hence, the difference is 0.00%.

Zacks Rank: Though Netflix's Zacks Rank #3 (Hold) increases the predictive power of ESP, the company's ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here is another company you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter:  

Apple Inc. (AAPL) with Earnings ESP of 3.85% and a Zacks Rank #1 (Strong Buy)

Super Micro Computer, Inc. (SMCI) with Earnings ESP of 2.94% and Zacks Rank # 2 (Buy)

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