The cable killer is on the loose and releasing earnings tomorrow July 17th. Netflix NFLX has been on a tear over the past 5 years. This stock has displayed returns close to 500% outpacing the rest of the FANG (shown below).
Tomorrow’s earnings are likely to move this stock one way or the other with the last 6 quarter releases having an average move of 6.6%. Netflix analysts are estimating an EPS of $0.56, which would represent a 34% year-over-year decrease. The firm is also expecting sales of $4.9 billion, which would illustrate 26% increase from the prior year as well as the largest top-line since inception.
Investors’ main focus needs to be on the number of added subscribers both domestically and internationally when dissecting the earnings report tomorrow. These figures tend to move the stock more directly than EPS and revenue estimates.
Additional subscriptions are expected to significantly slow down domestically with analysts estimating only 324,000 new subscribers. This could be the start of a domestic plateau in subscriptions, which was inevitable. It is now a matter of their ability to produce increasing profitability per retained subscriber.
International subscriptions are now the heart and soul of the business. Growth is estimated to be substantial, with 4.76 million new subscribers expected abroad. This would represent a 6.5% year-over-year increase but a 39% drop from Q1. Their international business is a segment that they cannot afford to see curtail, considering that this is anticipated to be the largest top-line driver moving forward.
Competition in Streaming
Competition in the subscription video streaming space is expected to pick up with new top-tier tech players exploring the segment. Apple AAPL is introducing Apple TV+ this autumn and Disney DIS is releasing its much anticipated Disney+ streaming platform November 12th. I discuss the saturating subscription streaming category in more detail in my article Netflix "The Cable Killer": Can They Remain The Streaming King?
When analyzing the Netflix earnings glance at EPS and revenue figures but keep your focus on subscriptions added in Q2 because that is going to be the true NFLX mover. Remember if you miss the initial move it doesn’t mean you have completely missed out on a buying/selling opportunity. NFLX tends to keep its moment after positive/negative earnings.
Look for changes in management guidance as well as management sentiment and tone for clues on how they see business moving forward.
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