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Summary

  • On the basis of growing free cash flow, revenue and global subscribers, these shares will regain their $400 market shortly after these results are announced.
  • Netflix has amassed 44 million worldwide subscribers, and expects to grow that figure by an additional 4 million in 2014, helped by Netflix's ability to differentiate itself.
  • Given Apple's strict attention to profit margins, Apple is not likely to follow Netflix's unlimited streaming model.

Netflix (NASDAQ:NFLX) is set to report its first-quarter earnings results on Monday. With all of the talks about a possible acquisition by Apple (NASDAQ:AAPL) and/or the fact that Apple has become a competitor, investors have already forgotten that Netflix still has a dominant business, one that has consistently demolished both earnings and guidance.

The problem with Netflix can be answered in one word; momentum. Investors sometime forget that momentum is a two-way street. And that momentum has gone the opposite way - pushing the stock down roughly 30% over the past 30 days. Even so, investors take solace in the fact that the stock has doubled of the trailing 12 months. But it's not time to get comfortable. One false move, or rather, one weak metric in Monday's report can send the stock tumbling to the $300 mark.

On Monday, analysts will look for earnings to grow roughly 170% year-over-year. That's not a typo. The consensus estimate is 83 cents per share, which will more than double last year's mark of 31 cents. This means that the Street is bullish on the company's future. In fact, over the past three months, estimates have risen from 77 cents. For the full year, the Street will be looking for earnings of $4.14 per share.

Revenue, meanwhile, is projected to surge 24% year-over-year to $1.27 billion for the quarter. Last year, the streaming movie giant posted revenue of $1.02 billion. For the full year, revenue is seen coming in at $5.38 billion. From my vantage point, these numbers are extremely conservative. And I don't see how Netflix will miss any of its targets. This is a company that knows how to deliver the goods.

Consider, over the previous four quarters, the company has delivered consistent double-digit year-over-year revenue growth. Even more impressive is the fact that revenue has surged by an average of 20% during that span, including a 22% jump in the third quarter. Despite these successes, it's a little surprising that investors suddenly feel threatened by Apple's recent deal with Comcast (NASDAQ:CMCSA).

As dominant has been Apple and the company's drive to re-invent TV, Apple is not yet in a position to threaten Netflix's subscribers. And more than anything, this is why the talking point has led to a possible acquisition by Apple. Content is king. And despite the inroads Apple may make in short periods of time, Apple will have a hard time matching Netflix's library, much less, surpassing.

For that matter, Amazon (NASDAQ:AMZN) has proven to be no threat. Despite the advantages Amazon has presented with bundling its Prime Streaming service, Netflix continues to grow subscribers at an impressive rate. Plus, unlike Netflix, Amazon has yet to explore international expansion. This is because the company feels it is too early.

Amazon wants more data from its domestic operation before investing in global growth. Netflix, meanwhile, has amassed 44 million worldwide subscribers, and expects to grow that figure by an additional 4 million in 2014, helped by Netflix's ability to differentiate itself by offering original content. Apple and Amazon are in no position to do this.

This is why CEO Reed Hastings considers HBO his company's only true threat. And let's assume that the Apple and Comcast discussions lead to some more than just talk, it is still unlikely that Apple will enter Netflix's market. Consider, Netflix offers unlimited streaming. Given Apple's strict attention to profit margins, Apple is not likely to follow this model.

Instead Apple's appeal will be in its ability to offer an à la carte model - something that consumers have been for years begging for. Plus, with Apple's current Apple TV device, which produced $1 billion in revenue for 2013, Apple will be more focused on growing that business than engaging in a content battle with Netflix. So for now, it's time to put away the "Apple will the death of Netflix" signs.

With Netflix stock still down sharply from their 52-week high, I would be a buyer here ahead of first-quarter earnings. While momentum is indeed a two-way street, it take one solid quarter to remind investors of the errors of their ways. And on the basis of growing free cash flow, revenue and global subscribers, these shares will regain their $400 market shortly after these results are announced.

Source: Why Apple And Amazon Are No Threat To Netflix, Stock Will Regain $400