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Netflix (NFLX) to Report Q3 Earnings: What's in the Offing?

Zacks Equity Research

Netflix Inc. NFLX is set to report third-quarter 2019 results on Oct 15.

Notably, the company’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average being 24.1%.

In the last reported quarter, the company delivered earnings of 60 cents per share, surpassing the Zacks Consensus Estimate by 4 cents and also bettering management’s guidance of 55 cents. However, earnings declined 29.4% year over year.

Meanwhile, revenues of $4.92 billion increased 26% year over year but lagged the consensus mark as well as management’s guidance of $4.93 billion. The lower-than-anticipated subscriber addition in the second quarter, apparently due to weak content slate in the quarter and a price hike in January, was a dampener.

Guidance and Estimates for Q3

For the third quarter, the company forecasts earnings of $1.04 per share, implying 16.9% growth from the year-ago reported figure. The Zacks Consensus Estimate has been steady at $1.05 over the past 30 days.

The company expects total revenues including the DVD business to be $5.25 billion, indicating a 31.3% rise from the year-earlier reported number. The Zacks Consensus Estimate for revenues is currently pegged at $5.25 billion, suggesting a 31.3% surge from the prior-year reported figure.

In the third quarter, the company expects to add 7 million paid subscribers, denoting a 15.3% rise from the figure reported in the same period last year.

Netflix, Inc. Price and EPS Surprise

Netflix, Inc. Price and EPS Surprise

Netflix, Inc. price-eps-surprise | Netflix, Inc. Quote

Let’s see how things are shaping up for this announcement.

Factors to Consider

Netflix’s third-quarter results are likely to be aided by its loyal subscriber base. The company’s robust and engaging content portfolio is a key driver in this regard. Moreover, its focus on streaming quality content including original productions is an upside.

The company’s stronger content slate for the third quarter, which saw new seasons for Stranger Things and La Casa de Papel (Money Heist), and the final season of Orange is the New Black among others raise optimism for its subscriber addition.

Further, the company’s efforts to offer content catering to various genres have been a key catalyst in bracing user engagement. Good news is that this year at Emmys, Netflix won 27 awards, up from 23 last year.

The company has also been ramping up its efforts to boost regional programming, which in turn, is helping it expand its international presence. The launch of a mobile-only product for India is likely to have encouraged adoption in the country.

However, stiff competition from Disney’s DIS Hulu, YouTube, AT&T’s T HBO and Amazon’s AMZN Prime Video poses a key threat to the company’s subscriber addition.

Also, an anticipated decline in US subscriber addition in the quarter under review is a downside. Moreover, weakness in the key international markets like Brazil and UK is likely to have been an overhang.

With competition in the streaming space set to soar in the coming month, management’s commentary on the same will be keenly followed by investors this earnings call.

Netflix currently has a Zacks Rank #4 (Sell).  

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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