Netflix Opens Techland Earnings Season On Monday, Sentiment Mostly Negative

Netflix will report earnings for the March quarter on Monday after the closing bell. The Street expects the company to report earnings of $0.37 per share on revenue of $2.64 billion for the first quarter in 2017.


The most important number that Wall Street will be looking for is the number of subscribers the company added in the March quarter. The company has guided Q1 subscriber additions split between 3.7 million internationally and 1.5 million within the U.S.


Current Street estimates are all over the place, with the bearish analysts expecting a higher number trying to set up a "miss" by Netflix so as to justify their negativity. On the flip side, the bullish analysts are more or less in-line with company guidance which is the way it should be. After all, who knows better than the company itself how many subs will be added in a given quarter? Yes, managing expectations aside.


For the current quarter (ending in June), Wall Street estimates are for lower profits of $0.24 per share on slightly higher revenues of $2.75 billion as the company ramps up on its programming and development costs leading to slightly lower earnings expectations.


A lot of the sell-siders are hedging their bets by saying they expect weak domestic subscriber additions while expecting strength in international subscriber additions.


Investors should remember that Netflix is going up against a tough compare in subscriber additions for Q1:17. Last year (March quarter) was the company's global launch to over 130 new countries which enabled the company to add 6.7 million new subscribers in Q1:16.


As is always the case, analysts have been all over the place with their previews going into Netflix's earnings on Monday.


Cantor came out with a report on Thursday that expected strong results from the company with earnings per share ahead and revenues slightly lower than current consensus. The analyst there expects subscriber additions to come in-line with guidance and kept a $160 PT and Overweight rating on the shares.


Also on Thursday, Guggenheim upped its price target on Netflix to $173 per share ($160 previous) and maintained its Buy rating on expectations of strengthening global engagement or subscriber additions.


This past Wednesday, Goldman Sachs reiterated its Buy rating and $170 price target with expectations that the company will beat its own guidance of 5.2 million net subscriber additions for the March quarter.


On the 10th, we had Cowen raise its price target on Netflix from $165 to $170, accompanied by raised subscription forecasts for the second half of 2017 on a combination of better original programming lineup, integration deals, lower churn and intact international subscriber additions. 


On the same day, Morgan Stanley maintained its $165 per share price target and Overweight rating on the company saying that it sees near-term expectations as reasonable. 


Finally, on the 5th of this month, Piper maintained its Overweight rating and $166 price target after its survey (1,000 internet households in 7 international markets) found that Netflix is poised to reach the firms longer term expectations.


On the flip side, M Science said this past Monday (the 10th) that they expect gross domestic subscriber additions to have slowed and thus lowered their expectations for gross domestic additions from 1.87 million down to 1.845 million.


Mind you, the company itself has guided net domestic subscriber additions in the quarter to 1.5 million, so even at the lower number expected by M Science, the company will have beat their own guidance by a whopping 23%.


However, that is not really an apples-to-apples comparison, with M Science talking gross domestic additions while Netflix guidance and the rest of the Street almost always deals in net additions both domestic and international.


I expect most on the Street will give Netflix high marks for a beat of that magnitude on the domestic net subscriber additions front, were that to happen.


On April 4, Rosenblatt initiated coverage on Netflix with a Neutral rating and a $150 price target.


Finally, on April 3, Baird said that it was maintaining its Neutral rating and $138 price target on Netflix citing weak U.S results. The firm was Neutral going into the Q4 print as well. Price target at Baird is $138.


Shares of Netflix closed this past Thursday at $142.92 per share, which is actually lower than where they were trading the day after the company announced numbers for its December quarter on January 18. So, there is a whole lot of hand-wringing by the darksiders and teary-eyed pleas to get out from the kindly uncles, despite the shares standing in place all quarter long.


Good luck however you are positioned going into the earnings report Monday.


(Long nflx, long and short nflx options)

Original Link
https://www.forbes.com/sites/jaysomaney/2017/04/15/netflix-opens-techland-earnings-season-on-monday-sentiment-mostly-negative/#46b00df56643