Is Netflix’s Run Coming to an End?

Netflix, Inc. (NFLX) Consumer Discretionary - Internet & Catalog Retail | Reports April 18, After Market Closes

Key Takeaways

• The Estimize community is looking for EPS of $0.04 on revenue expectations of $1.97 billion, 1 cent higher than Wall Street on the bottom line and $8 million greater on the top
• Netflix’s expansion in every country besides China has put pressure on profitability from its international operations
• Despite rising 129.5% in 2015, Netflix is down 7.67% year to date, reflecting growing skepticism over the company’s robust growth rate

As Netflix prepares for Q1 earnings early next week, investors will get the first results for the acclaimed FANG stocks. Netflix has clearly surpassed expectations over the last two years and is now one of the most highly regarded stocks in the market today. Last year the stock skyrocketed 129.5% on a steadily rising user base and international expansion into 130 additional countries. Netflix’s fourth quarter ended with just over 75 million members and crushed its earnings target by almost 5 cents. Despite strong growth, Netflix is down 7.67% year to date, raising the bar for its first quarter results. 

The Estimize community is looking for EPS of $0.04 on revenue expectations of $1.97 billion, 1 cent higher than Wall Street on the bottom line and $8 million greater on the top. Since Netflix last reported, EPS estimates have soared 21%, reflecting a strong possibility of an earnings beat. Still, compared to the year prior, profitability is expected to decline 54% on a 26% increase in sales. Netflix has been optimistic coming into fiscal 2016, guiding for revenue gains in both its international and domestic markets. 

Ahead of its earnings results, Netflix plans to raise its subscription price by $2 per month for 17 million users grandfathered into the company’s $7.99 plan two years ago. Given its inelasticity, a marginal rate hike is expected to improve revenue and margins more than it will hurt. This quarter management expects to add 6 million new users and it very well can, after launching in every country besides China earlier this year. Meanwhile, Netflix plans to unveil 600 hours of original programming this year, up from about 450 hours in 2015. Original programming such as House of Cards and Marvel’s Daredevil will cost the video streaming company $6 billion in 2016. As Amazon, Hulu and over the top content become more abundant, it will come at the expense of Netflix to maintain its market position. It doesn’t help that Netflix reported negative free cash flow in Q4 2015 and continues to invest heavily in content and international expansion.

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