Netflix, Inc. Earnings: Can Netflix Crush It Again?

By Anders Bylund Markets Fool.com

Netflix (NASDAQ: NFLX) is gearing up for a first-quarter earnings report on Monday night. Here's what investors should look for.

Continue Reading Below

By the numbers

Management often points out that the provided guidance figures represent the company's internal assumptions, intended to be as close to reality as possible:

Metric

Q1 2016 Result

Q1 2017 Guidance

Targeted Change (YOY)

Net additions, U.S. streaming

2.2 million

1.5 million

(33%)

Net additions, international streaming

4.5 million

3.7 million

(18%)

Streaming revenue

$1.8 billion

$2.5 billion

39%

Operating margin

2.5%

9.1%

260%

Net income

$28 million

$165 million

490%

Earnings per share

$0.06

$0.37

520%

Data source: Netflix.

For comparison purposes, this will be the one-year anniversary of Netflix's fully global expansion in early 2016. The year-ago period also saw domestic subscriber adds exceeding guidance by 27%, so both the domestic and international growth figures should be hard to beat or even match this time.

Continue Reading Below

As for the large expected increase in operating margin, Netflix is aiming for something like 7% on this metric in fiscal year 2017. The first quarter should come in a bit above that full-year target, due to the timing of content production schedules. The back-loaded production slate should also lead to faster subscriber growth in the second half of the year, all else being equal.

Image source: Getty Images.

Analysts weigh in

I am not interested in Wall Street's earnings estimates here, but some analyst firms do some useful legwork to figure out how Netflix's subscriber growth is shaping up.

The various batches of tea leaves are not providing a clear-cut answer this time.

  • Baird analyst Will Powers recently lowered his estimate of U.S. subscriber adds from 1.5 million to 1 million, based on soft results in the firm's survey of domestic Netflix customers. The quarter's batch of Netflix original shows lacked an obvious hit, according to that poll.
  • Barton Crockett from FBR Capital analyzed search data from Google, showing lower levels of consumer excitement about the Netflix brand than in the year-ago period. Crockett concluded that this was in line with management's guidance assumptions, and decided to stick with the official subscriber addition numbers.
  • Piper Jaffray's surveys found slightly higher Netflix viewership among U.S. teens than last fall's polls. In key international markets such as Germany, Brazil, and Australia, analyst Michael Olson heard 50% of the polled internet households saying that they either had a Netflix subscription now or plan to add the service later this year. I don't have any subscriber additions numbers from Olson, but he is "more confident" that the company will achieve 12.5% global penetration by the year 2020.

So there's a range of estimates, from quite negative to mildly positive. The stock tends to be very sensitive to any discrepancies between estimates and reported figures when it comes to Netflix subscriber adds, and this report should be no different. In other words, the stock seems about equally likely to jump or plunge on the reported results.

I'm content to stick with my large Netflix holdings and pull up a chair for the report. Subscriber adds and next-quarter guidance will be the big stories of the night -- totally worthy of some popcorn.

10 stocks we like better than Netflix
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Netflix wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of April 3, 2017

Anders Bylund owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.