Netflix Inc.
(
NFLX
) is scheduled to announce its fiscal second quarter 2012 results
after the closing bell on July 24, 2012. In the run up to the
earnings release we do not notice any significant estimate revision
by the analysts. We note that Netflix has outperformed the Zacks
Consensus Estimate in the preceding four quarters by a positive
34.95%. We expect this trend to continue in the current
quarter.
Previous Quarter Highlights
Netflix reported first quarter 2012 loss per share of 8 cents,
which not only outpaced the Zacks Consensus Estimate of a loss of
28 cents, but was also significantly above management's guided
range of a loss of 49 cents to a loss of 16 cents per share.
However, when compared on a year-over-year basis, Netflix's loss
per share had plummeted from earnings per share (EPS) of $1.11.
Total revenue increased 21.0% year over year to $869.8 million,
ahead of the Zacks Consensus Estimate of $867.0 million. The
year-on-year revenue growth was primarily boosted by newer
additions in the total subscriber base.
For further details please read:
Netflix Surpasses Estimates
Estimate Revision Trend
In the last 30 days, one out of the 27 analysts covering the
stock revised their estimates downward, while no upward revision
was noticed. However, the Zacks Consensus Estimate for the second
quarter 2012 remained at 4 cents, within management's the guided
range of (10 cents) to 14 cents.
For the second quarter, the revenue estimate as per the Zacks
Consensus is $889.0 million, which lies within management's guided
range of $873.0 million to $895.0 million.
Analysts expect the company to report decent quarter driven by
higher subscription growth. The company has been adding content for
its streaming business to make its offering more diverse. However,
the new licensing agreements would put pressure on the company's
cash flow. Moreover, investments made to expand into the
international regions might contract margins.
Recommendation
We believe Netflix's offering of new and exclusive contents is
the 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 and
international markets.
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 with bellwethers such as
Amazon.com Inc.
(
AMZN
) and
Verizon Communications
(
VZ
). This may 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
To read this article on Zacks.com click here.