Netflix Inc.
(
NFLX
) is scheduled to release its fiscal first-quarter 2012 results
after the closing bell on Monday, April 23, 2012. In the run up to
the earnings results, no substantial movement in analysts'
estimates for the quarter was noticed.
Prior Quarter Recap
Rebound in subscriber growth helped Netflix report robust fourth
quarter results. At the end of fourth quarter 2011, total numbers
of subscribers (Domestic and International) were 26.3 million, an
increase of 31.5% from the prior-year quarter. Most importantly,
subscriber growth rebounded in the reported quarter after the
company lost 800K subscribers in the third quarter.
Domestic revenue increased 43.0% from the year-ago quarter to
$846.6 million, which surpassed management's guided range of $816.0
to $845.0 million. International operations generated revenues of
$29.0 million, up 27.8% year over year and were at the higher end
of management's guided range of $25.0 million to $30.0 million.
Netflix's fourth quarter diluted earnings of 73 cents per share,
breezed past the Zacks Consensus Estimate of 55 cents per share and
management's guidance range of 36 cents to 70 cents. However, EPS
declined 16.1% year over year, primarily due to higher operating
expenses in the quarter.
Operating expenses shot up 81.2% year over year to $229.5
million, due to higher marketing expenses (up 81.8% year over
year), technology and development expenses (up 75.8% year over
year) and general and administrative expenses (up 93.0% year over
year) in the quarter.
For further details please read:
Netflix's 4Q Soars on Higher Users
Quarter Ahead
For the current quarter, management expects loss per share to be
in the range of 49 cents to 16 cents. The Zacks Consensus EPS
Estimate is pegged at a loss of 27 cents per share. Net loss is
expected to be in the range of $27.0 million to $9.0 million.
Domestic and International revenue is expected to be in the
range of $496.0 million to $511.0 million and $38.0 million to
$44.0 million, respectively. Domestic DVD revenue is expected to be
in the range of $308.0 million to $322.0 million for the first
quarter of 2012. For the quarter, the Zacks Consensus Estimate
projects Netflix to earn revenues of $867 million.
Management expects subscribers in the consolidated domestic
market and in the international market to range from 22.8 million
to 23.6 million and from 2.5 million to 3.1 million, respectively.
The U.S. DVD subscriber base is expected to be in the range of 9.4
million to 10.0 million.
Management expects the subscriber growth to be negatively
impacted by increasing attrition rate in the DVD segment. However,
management expects strong growth in streaming customer base in both
US and International in 2012.
Estimates Trend Revision
Over the past 30 days, none of the 28 analysts covering the
stock revised their estimates for the quarter. Thus, the Zacks
Consensus Estimate for the first quarter is been pinned at a loss
of 27 cents per share.
Analysts covering the stock expect the video streaming market to
be competitive for Netflix with some of the bellwethers like
Amazon.com Inc.
(
AMZN
), HBO and
Verizon Communications
(
VZ
) entering the arena. Moreover, content costs are on the rise with
the company going for new agreements with production houses to
enhance its content library. Additionally, analysts opine that the
international expansions (UK and Latin America) could take time to
be profitable.
However, analysts also believe that continued subscriber
additions could somewhat offset the lower profitability in the near
term.
Our Take
We note that Netflix has performed consistently during the last
4 quarters with its average earnings surprise being 18.02%. For the
to-be-reported quarter we expect the company to beat the Zacks
Consensus by the same magnitude.
Netflix's offering of new and exclusive content to its
subscribers are its biggest USP compared to some of its closest
peers. Apart from recent movies and documentaries, Netflix is also
boosting its original content portfolio to entice new subscribers
in the US market and international market.
However, higher capital expenditure due to international
expansion will hurt earnings growth in the near term, in our view.
Moreover, when compared to some of its cable and communications
peers that have diversified revenue and cash flow streams, Netflix
relies solely on streaming for future growth, as its DVD rental
business continues to lose subscribers.
We believe that the streaming market is getting overcrowded and
this will hurt Netflix's margins going forward. We provide a word
of caution to investors in this respect.
We have a Neutral recommendation on Netflix over the long term.
Currently, Netflix has a Zacks #3 Rank, which implies a Hold rating
in the short term.
AMAZON.COM INC (
AMZN
): Free Stock Analysis Report
NETFLIX INC (
NFLX
): Free Stock Analysis Report
VERIZON COMM (
VZ
): Free Stock Analysis Report
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