Netflix Inc. Needs a Strong Earnings Report on Jan. 20

By Markets Fool.com

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The clock is ticking on Netflix . The leading premium video service reports financial results after Tuesday's market close.

There's plenty riding on the fourth quarter report. The market is rightfully skeptical after Netflix bombed last time out. October'spoorly received quarterly reportfound it falling short of its own subscriber target, leading some to wonder if the popularity of its digital smorgasbord was starting to wane.

Netflix rivals would kill to service the 53.06 million streaming subscribers that were on the dot-com speedster's rolls by the end of September, but that was still well short of the the 53.74 million that it was targeting.

This makes Netflix's subscriber figure perhaps the most important of its Tuesday afternoon announcements. Netflix's mid-October forecast called for the service to close out the year with 57.06 million streaming subs worldwide. It can't afford to miss. If its historically conservative prognostications fall short in back-to-back quarters it's going to scare away investors that forgave the third quarter flop as a fluke.

Netflix was confident of closing out the quarter with 4 million more total streaming accounts than it had at the end of September. It pointed to a slowdown in signups over the summer after aspringtime pricing increase, and that was baked into the new target. It's a big number. It obviously won't be the only number.

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Analysts see $1.48 billion in revenue for the quarter, a healthy 26% uptick from the prior year's holiday quarter. That's the good news. The bad news is that a substantially larger loss overseas will more than offset a modest gain closer to home. The end result is that Netflix's guidance calls for earnings per share of just $0.44, well below the $0.79 that it delivered a year earlier.

Obviously Netflix's guidance could also move the stock. It will be challenging. Netflix pointed out back in October that it will have to pay higher VAT through most of Europe starting this year, and it has chosen to absorb the hit instead of passing it on to its subscribers. It's the right call given the decelerating account growth during last year's third quarter, but it may come at the expense of profit guidance that doesn't live up to expectations.

Netflix will also likely have some interesting things to say about its emerging competition.Amazon.com winning a pair of Golden Globe awards this past weekend turned heads, and it just announced that it was working with Woody Allen on a new original series. Then there'sTime Warner's HBO, the company that Netflix CEO Reed Hastings often refers to as his biggest rival. HBO is making things interesting this year, promising to introduce an over-the-top streaming service in 2015, freeing interested subscribers to buy HBO content as a digitally delivered platform without the need to going through a cable or satellite television provider. Hastings usually has a good feel for what the competition is working on, and it can sometimes lead to some headline-worthy comments.

At the end of the day, Netflix can't afford to disappoint investors the way it did last time out. The stock had shed roughly a quarter of its value since peaking last September, but it's also just a little more than two years removed from when the stock was languishing in the double digits. If Netflix wants to return as a market darling it can't afford to post back-to-back stinkers.

It's showtime for Netflix. It needs to establish itself on Wall Street as a feature attraction again.

The article Netflix Inc. Needs a Strong Earnings Report on Jan. 20 originally appeared on Fool.com.

Rick Munarriz owns shares of Netflix. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.