Netflix Inc. (NASDAQ:NFLX) is set to report FQ1 2014 earnings after the market closes on Monday, April 21st. After reaching all time highs in early March Netflix has plummeted nearly 25% as the market experienced a broad rotation out of high growth momentum tech stocks into more conservative value oriented dividend paying equities. Last quarter shares surged after Netflix beat EPS expectations by 13c per share. Look for big revenue growth Monday and there are whispers that the online streaming video company may announce a raise in subscription prices which could translate to a significant boost in future profitability.
The current Wall Street consensus expectation is for Netflix to report 83c EPS and $1.267B revenue, while the current Estimize.com consensus from 52 Buy Side and Independent contributing analysts is 84c EPS and $1.272B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Netflix to beat the Wall Street consensus on both EPS and revenue by a small margin.
Over the past 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting Netflix's EPS and revenue 5 and 3 times respectively. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a small difference between the two groups' EPS expectations compared to previous quarters and a slightly larger delta than usual in revenue.
The distribution of estimates published by analysts on the Estimize.com platform range from 72c to 95c EPS and from $1.234B to $1.301B in revenues. This quarter we're seeing a moderate distribution of estimates on NFLX.
The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean more volatility post earnings.
Over the past 4 months the Wall Street EPS consensus has risen from 78c to 83c, while the Estimize consensus surged from 71c to 84c. Meanwhile, the Wall Street revenue consensus shot up from $1.237B to $1.267B while the Estimize consensus increased from $1.231B to $1.272B. Timeliness is correlated with accuracy and upward estimate revisions at the end of the quarter are often a bullish indicator.
The analyst with the highest estimate confidence rating this quarter is Alex_Salomon, who projects 85c EPS and $1.281B in revenue. Alex_Salomon is ranked 7th overall among over 4,150 contributing analysts. Over the past year, Alex_Salomon has been more accurate than Wall Street in forecasting EPS and revenue 52% and 47% of the time respectively throughout 2068 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, Alex_Salomon is making a bullish call expecting Netflix to beat the Estimize community's consensus on both EPS and revenue.
Even though the battle of streaming video continues to heat up between Amazon (NASDAQ:AMZN) Prime Instant Video, HBO Go, and Netflix, Netflix subscription prices remain low at $7.99 per month. On January 14th the DC Circuit Court ruled that the FCC had no right to govern Net Neutrality rules, posing a significant risk of rising costs to Netflix and other large consumers of data. Last month Netflix reached its first deal in the post net neutrality era for a direct connection to the Comcast (NASDAQ:CMCSA) network which saw connection speeds rise by over 50%. In January Netflix released a letter to shareholders highlighting the company's evaluation of plan tiering, a sign that a raise in subscription prices could be around the corner. On Monday the Estimize community is expecting Netflix to report year over year EPS growth of 53c per share and yoy revenue growth of 24.2%.