Market Overview

Netflix Earnings Preview: Another Profitable Quarter Expected

Netflix (NASDAQ: NFLX), which has been one of the top performing S&P 500 members so far this year, is scheduled to report its first-quarter 2013 results Monday, April 22, after the markets close.

Investors will be looking to see whether subscriber growth and international expansion will continue to help offset increasing competition and high content costs. And it will interesting to see how successful the move into original programming has been.

Expectations

Analysts on average predict that Netflix will report that revenue for the first quarter rose about 17 percent year-over-year to $1.02 billion. Earnings of $0.18 per share are also in the consensus forecast. That compares to a reported net loss of $0.08 per share in the comparable period of last year and to per-share earnings of $0.13 in the previous quarter.

In the past 60 days, the consensus earnings per share (EPS) estimate has risen from $0.16. And note that analysts underestimated Netflix earnings in the past eight quarters. The fourth-quarter EPS topped expectations by 200 percent.

Netflix said it added two million users in the fourth quarter and expected to add 1.7 million more in the first quarter. Net income was hurt by the cost of producing original programming. And Carl Icahn became a 10 percent investor in the quarter. The share price jumped more than 73 percent following the surprising fourth-quarter report.

Looking ahead to the current quarter, the forecast currently calls for EPS to more than double year-over-year to $0.29. That EPS estimate was only $0.09 some 90 days ago. And revenue for the quarter is expected to be almost 19 percent higher to $1.06 billion. Full-year revenue so far is expected to be up by more than 18 percent as well.

The Company

Netflix operates in three segments. Its Domestic Streaming segment offers access to content delivered over the Internet. The International Streaming segment engages in the streaming services primarily in Canada, Europe and Latin America. And the Domestic DVD segment provides DVDs-by-mail subscription services.

This S&P 500 component was founded in 1997 and is headquartered in Los Gatos, California. The company has a market capitalization near $9.1 billion. Reed Hastings has served as chief executive officer since September 1998 and chairman of the board since its inception.

Competitors include Amazon.com (NASDAQ: AMZN), Dish Network (NASDAQ: DISH) and Coinstar (NASDAQ: CSTR), which operates the Redbox DVD rental kiosks. Amazon is expected to report earnings of only pennies per share, but higher revenues. Coinstar and Dish are also expected to report a year-over-year decline in earnings, as well as marginal growth in revenue. Amazon and Coinstar are scheduled to share their first-quarter results later in the week.

During the three months that ended in March, Netflix announced a collaboration with DreamWorks Animation (NASDAQ: DWA), launched a new integration with Facebook feature and announced a new original series from the makers of The Matrix films.

Performance

Netflix has a long-term EPS growth forecast of more than 19 percent. However, its price-to-earnings (P/E) ratio is in the stratosphere. And the return on equity is less than three percent. The company offers no dividend at this time.

The number of Netflix shares sold short, as of the March 28 settlement date, represents more than 13 percent of the float. While that was the lowest level of short interest in at least a year, the days to cover has risen to more than two.

The consensus recommendation of the analysts surveyed by Thomson/First Call who follow the stock has been to hold shares for the past three months. So it is not much of a surprise that the current share price has overrun the analysts' mean price target. While the analysts see no potential upside at this time, price targets could be raised if Netflix offers another big upside surprise or rosy guidance.

The share price is up more than 77 percent since the beginning of the year, though most of that gain came after the fourth-quarter report in January. The share price has been below the 50-day moving average since early this month. Over the past six months, though, the stock has outperformed the competitors mentioned above, as well as the broader markets.

Posted-In: Amazon.com Coinstar Dish NetworkEarnings Long Ideas Short Ideas Previews Trading Ideas Best of Benzinga

 

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