Netflix Earnings Preview: Two Million New Subscribers?
Netflix (NASDAQ: NFLX), which appears to preparing for expansion into Germany and France, is scheduled to report its fourth-quarter 2013 results Wednesday, January 22, after the end of the trading session.
Netflix finished 2013 as the single best-performing stock in the S&P 500 index. Investors will be looking for continued strong subscriber growth to an estimated 2 million new users in the final quarter, as well as any news of renewed international expansion, which had slowed in 2013.
Analysts on average predict that Netflix will report revenue for the fourth quarter that rose more than 23 percent year-over-year to $1.17 billion. Earnings of $0.66 per share are also in the consensus forecast. That compares to a reported profit of $0.13 per share in the comparable period of last year and to $0.52 in the previous quarter.
In the past 60 days, that consensus earnings per share (EPS) estimate has ticked up by a penny. And note that analysts underestimated Netflix earnings in all but one of the past four quarters. The earnings beat in the third quarter was by about six percent.
Netflix said it added more than 1.3 million domestic streaming subscribers in the third quarter, which was more than Wall Street had expected. The company also said it would double its investment in original content in 2014. Yet, the share price retreated more than 11 percent in the days after the third-quarter report.
The analysts' consensus full-year forecast calls for $1.48 per share in earnings on revenue of $4.34 billion. That would be up from $0.29 per share and $3.61 billion in the previous year. That consensus EPS estimate has risen from $1.41 over the past 60 days.
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 $19.6 billion. Reed Hastings has served as chief executive officer since September 1998 and chairman of the board since its inception.
Competitors include Amazon.com, Dish Network and Outerwall, which operates the Redbox DVD rental kiosks. Amazon is expected to post strong earnings and revenue growth for the fourth quarter, which included the holiday shopping period. Analysts are looking for top and bottom line growth from Outerwall for the quarter, but an earnings decline and flat revenue from Dish.
During the three months that ended in December, Netflix ordered a new series from the creators of "Damages," struck a deal with Disney for new series based on Marvel characters, announced the second season premier date of the Emmy-winning "House of Cards" and announced the termination of a shareholder rights plan.
Netflix has a long-term EPS growth forecast of more than 22 percent. However, its price-to-earnings (P/E) ratio is in the stratosphere, though less than that of Amazon. And the return on equity is less than eight percent, but the operating margin is greater than Amazon's. Netflix offers no dividend at this time.
The number of Netflix shares sold short, as of the December 31 settlement date, represents more than nine percent of the float. That was the lowest level of short interest last year. It would take more than two days to close out all of the short positions.
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. The mean price target, or where analysts expect the share price to go, is about five percent higher than the current share price. But shares traded higher than that consensus target last week.
The share price is down more than 12 percent in the past month, falling below the 50-day moving average. It is still more than 24 percent higher than six months ago, though. The stock has underperformed Amazon but outperformed the other competitors mentioned above, as well as the broader markets, over the past six months.
At the time of this writing, the author had no position in the mentioned equities.
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