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Wait for Netflix to Report Its 1st Quarter

- By Sangara Narayanan

Netflix Inc. (NFLX) will be reporting its first-quarter 2017 earnings results after the market closes on April 17 . If you are a Netflix investor, you had better brace yourself because, whichever way the results go, the stock tends to move a lot around earnings time due to its seven times price-sales valuation.

More than revenue and bottom-line results, the stock tends to move based on the company's performance against its own forecasts for subscriber growth and its outlook for subsequent quarters. Netflix blew past its own subscriber estimates for the fourth quarter of 2016, reporting 93.80 million worldwide subscribers against its forecast of 91.94 million.

Netflix added 7.06 million global subscribers during the fourth quarter of 2016 and is expecting to add 5.2 million during the first quarter of 2017, which is slightly lower than the 6.74 million subscribers it added in the year-ago period.

With 130 overseas markets under its belt, Netflix could spring a surprise in international subscriptions, as it is expecting to add 3.7 million overseas customers during the first quarter. That is much lower than the 4.51 million subscribers added in first-quarter 2016, when the company added nearly 130 countries to its global list. Increasing brand awareness coupled with Netflix's growing investments in original content should help the company add more subscribers internationally during the first quarter of this year compared to last year.

Wall Street is expecting Netflix to post earnings per share of 37 cents with revenues of $2.64 billion. If Netflix fails to meet these standards but projects adding 7 million international subscribers during the second quarter, the stock will inevitably surge.

If you are planning to buy Netflix, the best time to do so is after the earnings report. If Netflix reports bad subscriber growth numbers, the stock will be hammered, which is what happened after the first and second quarter results in 2016.

Disclosure: I have no positions in the stock mentioned above and no intention of initiating a position in the next 72 hours.

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This article first appeared on GuruFocus.