Earnings Preview - Netflix Q1 2014

Apr.17.14 | About: Netflix, Inc. (NFLX)

Summary

Netflix, Inc. is slated to report 1Q2014 earnings after the bell on Monday, April 21.

Earnings Per Share (EPS): Company guidance in January was for $0.78. The current Street estimate is $0.83 (range $0.76 to $1.01).

Revenues: Analysts expect an increase of 23.6% y/y to $1.27 bln (range $1.24 bln to $1.28 bln).

By Craig Bowles

Overview

Netflix, Inc. (NASDAQ:NFLX) is slated to report 1Q2014 earnings after the bell on Monday, April 21. The earnings release is expected at approximately 4:05 p.m. EST with a conference call to follow at 5:00 p.m. that is webcast through Netflix Investor Relations. The company operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD.

Outliers & Strategy

Key measures:

  • Earnings Per Share: Netflix typically reports a "clean" number that is comparable to consensus estimates but will exclude items when necessary. Company guidance in January was for $0.78. The current Street estimate is $0.83 (range $0.76 to $1.01) (Source: Yahoo! Finance).
  • Revenues: Analysts expect an increase of 23.6% y/y to $1.27 bln (range $1.24 bln to $1.28 bln).
  • Earnings Per Share Guidance (2Q 2014): Analysts expect Netflix to earn $1.01 with a range of $0.65 to $1.50, so guidance outside of this range could impact shares.
  • Insiders sold 1,067,870 shares during the past six months.
  • Netflix is compared to other video rental companies with quarterly results possibly impacting the likes of Hastings Entertainment (NASDAQ:HAST) and Barnes & Noble (NYSE:BKS). Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) are the biggest competitors for streaming video.
  • Netflix shares have shown a 1-day average price change on earnings of 13.3%. Options are pricing in an implied move of 13.21% off earnings.

Recent News

  • 04/15: Netflix recently agreed to pay Comcast for a more direct route through its network and now speed is up 65 percent if Comcast is your ISP, according to a post at Wall St. Cheat Sheet.
  • 04/15: Pay TV subscriptions expected to rise through 2019, according to an article by USA Today.
  • 04/14: Wedbush says 1Q advertising spending estimates may be too low with a high sign-up rate for House of Cards. Eventually, the Comcast deal will force a price increase, according to a post on Benzinga.com.
  • 04/10: The European Union's tough new rules enforcing net neutrality could make it easier for Netflix to cost-effectively compete for business, according to a post on TheMotleyFool.com.
  • 02/25: Netflix could lose House Of Cards and Orange Is The New Black by 2015, according to a post on Benzinga.com.

Technical Review

After gapping up on last quarter's earnings release, Netflix shares are trading at similar levels as prior to that upside move, which is also where the CEO previously sold $5.3 mln in stock. The stock price is testing below its 200-day MA. Volatility is part of this stock's profile but the last five years have been more of a multi-year boom/bust cycle where the 200-day MA has been an accelerator point in direction change. Short-term moving averages are still above the long-term averages leading technicians into a chorus of "oversold." Around $320 remains support, below which finds very little support down to $250. Conversely, a strong report has possible resistance at the 20-day MA's $361 and then the 40-day MA's $405. (Chart courtesy of StockCharts.com)

Summary

Netflix shares have already had their biggest decline since rising from the late 2012 low when trading at just over $50. Expectations were running high ahead of the previous release but this quarter hasn't seen consensus budge the last two months. A combination of increased competition and sheer magnitude of the previous stock price rise are possible considerations. Netflix has beaten earnings consensus by a minimum of 3c the last three quarters with mixed results in the stock price. A beat by more than 10c with solid subscriber additions would probably support a short-term oversold bounce. A bearish report might worry even long-term bulls with the decade uptrend line closer to $100 than $300.

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