JPMorgan Edges Netflix Estimates 'Modestly' Lower Into Q1 Report

Netflix, Inc. NFLX is scheduled to report its 1Q16 earnings on April 18, after market close.

JPMorgan’s Doug Anmuth maintained an Overweight rating on the company, while lowering the price target from $141 to $139.

What To Expect For 1Q

Anmuth expects the company to report its global subscriber growth in line with the guidance, driven by strength in its International operations, while domestic net adds are likely to come in below the guidance.

The analyst also expects revenue to accelerate in 1Q to $ 2 billion, and through 2016 to $9.1 billion, driven by ASP and subscriber growth.

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Operating margins are expected at 2.9 percent for Q1 and at 3.0 percent for 2016, while free cash flows are expected at -$346 million in Q1 and -$940 million in 2016, driven by “heavy investment in original content and higher upfront costs.”

Q2 & 2016

Anmuth expressed optimism regarding robust original content in Q2, as well as through the rest of 2016, stating that the focus would be “more on quality than breadth.”

The upcoming “un-grandfathering” in May is expected to impact 70 percent of the domestic subscribers.

JPMorgan’s proprietary survey, conducted in February 2016, revealed that as many as 80 percent of the users were unaware of the upcoming price hike, while 15 percent were likely to cancel their subscription following a price increase.

Anmuth mentioned, however, that “cancels, upgrades, and downgrades could offset as our survey suggests there is ~20 percent ASP upside for the May’16 cohort.”