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Netflix, Inc. (NFLX) Beats Sky-High Earnings Expectations

Wayne Duggan

Netflix, Inc. (Nasdaq: NFLX) jumped more than 5 percent in after-hour trading Monday after the company successfully reported first-quarter earnings that exceeded analysts' expectations. Netflix's beat was extremely impressive given the stock was already up more than 60 percent year-to-date, and analysts remain optimistic about the stock's long-term outlook.

Netflix reported first-quarter earnings per share of 64 cents, in line with consensus analyst expectations. First-quarter revenue of $3.7 billion came in slightly ahead of expectations of $3.69 billion. Those numbers represent impressive 60 percent and 40 percent growth, respectively.

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However, with Netflix stock currently trading at a 218 price-earnings ratio, the fifth-highest earnings multiple in the Standard & Poor's 500 index, the market was much more concerned with subscriber growth than EPS. Netflix didn't disappoint.

Netflix reported a total of 7.41 million net global subscriber additions, well ahead of the 6.5 million consensus estimates. The company reported 1.98 million net U.S. subscriber ads, easily topping Wall Street expectations of 1.48 million. Netflix also added 5.46 million net international subscribers, ahead of analyst expectations of 5.02 million.

Looking ahead to the second quarter, Netflix once again topped Wall Street expectations, guiding for net subscriber additions of 6.2 million compared to consensus estimates of 5.24 million.

Second-quarter guidance for EPS of 79 cents and revenue of $3.9 billion also beat consensus expectations of 65 cents and $3.89 billion, respectively.

GBH Insights head of technology research Daniel Ives says the quarter was yet another home run for Netflix.

"Netflix just delivered eye-popping 1Q results which handily blew away Street expectations," Ives says.

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He says the large beat in domestic subscriber additions is particularly bullish for investors because it demonstrates just how much pricing power Netflix has. Netflix raised its monthly subscription fee for its standard tier service from $9.99 to $10.99 in November.

"Overall, this was a grand slam quarter for Netflix and should put any lingering worries to rest around sub growth, international ramp, and the negative lingering possible effects from the price increase," Ives says.

GBH Insights has a "highly attractive" rating and $375 price target for NFLX stock.

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