Netflix Earnings Preview: Quarterly Net Loss to Take Bite out of Full-Year Profit
Netflix (NASDAQ: NFLX), which recently set content deals with Walt Disney (NYSE: DIS) and Time Warner (NYSE: TWX), is scheduled to report its fourth-quarter and full-year results Wednesday, January 23 after market close.
Investors will be looking to see whether previously sluggish subscriber growth can help offset increasing competition and high content costs.
Analysts on average predict that Netflix will report that revenue for the quarter rose more than six percent year-over-year to $934.37 million. But a net loss of $0.60 per share is also in the consensus forecast. That compares with a reported profit of $0.73 per share in the comparable period of last year. Note that 60 days ago that consensus earnings estimate was only -$0.11 per share, and also the harshest individual estimate calls for a net loss of $13.00 per share.
However, analysts generally have underestimated Netflix's earnings per share (EPS) results in the past eight quarters. The third-quarter earnings of $0.13 per share beat the street view by some 225 percent.
The third-quarter revenue was in line with consensus estimates, but the U.S. streaming-subscriber forecast disappointed some investors. In the report, Netflix also warned of a possible net loss in the fourth quarter due to its expansion into Finland, Denmark and Sweden. The share price dropped about 12 percent following the third-quarter report but rebounded in less than a week.
The analysts' consensus forecast for the full year calls for $0.04 per share earnings, as well as $3.60 billion in revenue. That compares to $4.26 per share and sales of $3.20 billion in the previous year. That consensus EPS estimate is unchanged in the past 30 days.
Netflix provides online streaming and DVD-by-mail subscription services for TV shows and movies in the United States and internationally. This S&P 500 component was founded in 1997 and is now headquartered in Los Gatos, California. The company has a market capitalization near $5.5 billion. Reed Hastings has served as chief executive officer since September 1998 and chairman of the board since its inception.
Competitors include Amazon.com Inc. (NASDAQ: AMZN), Coinstar (NASDAQ: CSTR) and Dish Network (NASDAQ: DISH). All three companies are expected to report lower per-share earnings for their most recent quarters, though revenues at Amazon and Coinstar are predicted to rise, relative to the previous year.
During the three months that ended in December, Netflix launched its services in the Nordic countries mentioned above, adopted a "poison pill" stockholder rights plan and announced a multiyear agreement with Disney.
Netflix's long-term EPS growth forecast is more than 23 percent, but its price-to-earnings (P/E) ratio is greater than the industry average. While the operating margin also is greater than the industry average, the return on equity is only about eight percent and the return on investment is less than three percent. The number of Netflix shares sold short, as of the end of December, represents a more than 24 percent of the float. Note though that the short interest has been dwindling since the end of October.
Only six out of the 34 analysts surveyed by Thomson/First Call who follow the stock recommend buying shares. Nine rate the stock at Underperform or Sell. Perhaps not surprisingly, the current share price has overrun the analysts' mean price target, or where they expect the stock to go. The highest individual price target is about 11 percent higher than the current share price. Some price targets could be raised if Netflix manages to offer a positive surprise in its report.
The share price has risen about 24 percent in the past six months, despite pulling back more than four percent in the past week. Shares are trading more than five percent higher than a year ago. The share price is above both the 50-day and 200-day moving averages, which formed a golden cross in mid-December. Over the past six months, the stock has outperformed the competitors mentioned above, as well as the Nasdaq and the S&P 500.
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