Photo Credit: Global Panorama

Netflix, Inc. (NFLX) Information Technology - Internet & Catalog Retail | Reports October 17, After Market Closes

Monday begins the first peak week of earnings season with a handful of reports including online video service, Netflix. Both earnings and shares have edged down this year giving back some of its gains from 2015. Investors are coming to grips with the fact that 2015 was more likely a fluke rather than a trend. This downturn has been largely driven by shrinking subscriber base, increasing competition, inability to gain traction abroad. Netflix is now at the center of takeover talks as it heads into its third quarter report.

Analysts at Estimize are calling for earnings per share of 8 cents, 7% higher than the same period last year. That estimate has increased 9% since Netflix’s most recent report in July. Revenue for the period is estimated 31% higher at $2.28 billion, a marked increase on a sequential basis. Historically the stock has performed well following an earnings report but given its recent woes it’s entirely possible that shares decline Monday afternoon. Shares are down 13% year to date and 9% in the past 12 months.

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As is always the case, investors will be closely watching subscription growth numbers for the quarter. In the second quarter Netflix added 1.7 million subscribers , well belows its own expectations of 2.5 million. A majority of the 1.7 million subscribers came internationally, where management has begun to shifts its focus. This large discrepancy between actuals and expected results was blamed on greater churn after monthly rates were raised. Tenured members were also ungrandfathered from cheaper plans into the new more expensive service. This should continue to be a problem, conceivably until the end of the year.

On a positive note, Netflix continues to gain mainstream media attention from its original content. Its most recent series, Luke Cage, was in such high demand its opening week that it crashed servers. Meanwhile, new partnerships and ongoing global expansion will help boost earnings if domestic problems continue. Netflix will now be featured in Comcast X1 set top boxes and is making its way to the big screen through a deal with iPic.

More importantly, Netflix is gaining more attention as a potential takeover target. In early October, new rumors surfaced that both Apple and Disney were thinking about making a bid for the video streaming platform. An acquisition may turn out to be a good thing for Netflix as it tries to stave off competitive headwinds from Amazon and similar platforms. 

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