Earnings Preview: Netflix

Netflix (NFLX) is expected to report Q2 earnings after market close Thursday, July 24, with a conference call scheduled for Friday at 8:30 a.m. ET.

Guidance

Analysts are looking for a profit of 40c on revenue of $337.56M. The consensus range is 32c to 49c for EPS, and revenue of $330.79M to $341.5M, according to First Call. In April, Netflix forecast Q2 EPS 33c to 42c and revenue $334M-$339M; at the same time, Netflix lowered its FY08 EPS view to $1.16 to $1.29 from $1.18 to $1.30 vs. First Call consensus of $1.23 and raised its FY08 revenue view to $1.35B to $1.39B from $1.345B to $1.385B vs. First Call consensus of $1.37B.

Analyst Views

Piper believes the key metrics for Netflix are net subscription additions, churn, subscriber acquisition cost and gross margin. The firm's analysis of website traffic data for Q2 showed Netflix's website reach increased 2% compared to Blockbuster's (BBI) decrease of 22%. Additionally, Needham said that additional subscriber data was the basis for upgrading the stock to Hold from Underperform.

On July 14, Netflix announced an exclusive partnership with Microsoft (MSFT) to supply films to the Xbox 360 gaming console. Thomas Weisel believes this helps the company expand its subscriber base and improve retention. However, the firm remains cautious on the stock as they view the company's guidance and Street estimates as aggressive.

Wedbush expects Netflix will report in-line estimates and that management will maintain 2008 guidance for ending subscribers of 9.1M to 9.7M. The firm said Netflix has become far more comfortable with Netflix's business model, though the overall addressable market opportunity is likely smaller than company management believes. The firm said the partnership with Microsoft is leveraging.