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Streaming giant Netflix reported better than third quarter earnings after the close Tuesday. Analysts focused on the FANG leaders much higher domestic and international subscribers which saw $NFLX gap up 12%, last quarter $NFLX collapsed over 12% in after hours.


Netflix Stranger Things

 Stranger Things: Netflix's Most Popular Show in 2018

Netflix is the first FANG company to release September quarter earnings.

Netflix Inc NASDAQ: NFLX · Report Beat After Close Tuesday

$0.89 Beat Analysts Forecast $0.68 EPS On  In-Line $4.00 Billion in Revenue 

Earnings 

Netflix reported EPS of $0.89 beating analyst estimates of $0.68 on in-line revenues of $4.0 billion. $NFLX added 6.96 million subscribers globally in the quarter well ahead of consensus estimates of roughly 5.1 million adds.  For the seasonally strong Q4, Netflix guided for 9.4 million subscriber adds, well above a 7.7 million consensus. In the year-earlier quarter, Netflix earned 29 cents a share on sales of $2.98 billion. 

Netflix Inc NASDAQ: NFLX

Market Reaction> After hours 388.29 +41.89 (+12.09%) 

Highlights

  • Q3 operating margin was 12%, above guidance of 10.5%.
  • Netflix attributes this to the timing of content/marketing expenses.
  • Q3 subscriber additions: 6.96 million. In the same period last year, Netflix added 5.3 million subscibers
  • Total Streaming revenue grew 36% to $3.91 billion, as Netflix added 6.96 million members to make its total membership base a massive 137.10 million.
  • In the US alone Netflix earned $1.94 billion in revenue as it added 1.09 million to total memberships.

NFLX Earnings Q3 18

Outlook

  • Netflix's projects it will post $4.2 billion in revenue for Q4. Prior to the report, analysts had predicted revenue would be $4.23 billion. In the fourth quarter last year, Netflix saw sales of $3.29 billion.
  • Earnings per share, Q4 forecast of 23 cents, much less than the projected 50.4 cents a share. In the same quarter last year, it posted a profit of 41 cents a share.
  • Subscriber additions, Q4 forecast of 9.4 million. In the holiday period last year, it added 8.33 million.
  • Netflix only expects an operating margin of 5% to 7.5% in Q4.
  • For the full year, operatng margin is still expected to be at the lower end of a 10% to 11% guidance range.
  • Netflix expects its 2019 FCF to be "roughly flat" relative to 2018's FCF, which is expected to be around negative $3B. That's below a 2019 FCF consensus of negative $2.3B.

The stock has been a darling of momentum players and jumped 5.8% Friday after Citigroup analyst Mark May upgraded $NFLX to buy from neutral and reiterated a price target of $375 calling it an "opportunistic upgrade." Netflix closed at 339.56 on Friday.

The stock fell below its 200-day moving average on Thursday's sell off and still remains below its 50-day moving average  Netflix after notching a record high of 423.21 on June 21 this year the stock has fallen 24% through Thursday's close, recovering 5.8% of that on Friday. Despite the sell off $NFLX remains one of the best performers in the S&P 500 this year, up over 70%.

The risk is another miss and dump like last quarter. Macquarie Capital sums it up  “A second straight subscriber miss would likely be taken very negatively by the street, and we would expect a more protracted decline in the share price than we saw in seasonally weak Q2.”

Know your risk, stranger things have happened with this name...

They key is what Netflix did to get there.

What is the ASP or average selling price? The ASP rose 12% annually in Q1 and 14% in Q2 with price rises and an improving mix of HD and 4K subscription plans. Domestically gains are expected the risk is how the strong US dollar impacts international subs.

The cost of content is a huge component in the battle between studios.  With the 2018 content budget released in 2017 revised higher and Netflix having not told us what their content budget for 2019 is, this is a huge what if.

Last quarter Netflix said it's content spend will be between $7.5 billion to $8 billion for 2018r on a profit-and-loss basis, on a cash basis, spending coulbe be over $12 billion. Back then Netflixdid say they planed to raise r up its content spend in the coming year, but how and by how much?\

Given the ASP and content questions the cash burn guidance is crucial. Last quarter the company forecast 2018 free cash flow (FCF) of minus $3 billion to $4 billion. This was after the  cash burn during the first two quarters of 2018 of $847 million, so clearly a much higher draw. 

 

Netflix Inc NFLX· Q2 Earnings Recap

Earnings:

  • EPS of 85 cents beats 79 cents expected.
  • Revenue of $3.91 billion misses $3.94 billion expected by a Thomson Reuters consensus estimate

 

  • Reaction Netflix, Inc. NASDAQ: $NFLX
  • After hours 352.03 -48.47 (-12.10%)
  • (After closing $400.48 +4.68 (+1.18%) July 16, 2018)

Subscriber growth is the most crucial metric for Netflix. Growth in both Q417 and Q118 blew away earnings and the stock has continued to soar since, though cracks were seen Friday with $NFLX down 4.3% Friday. Momentum stocks need continuous upside suprises or the the lose, momentum.

NetFlix Q2 2018 Subscriber Highlights

  • Total streaming net adds: 5.15 million vs. 6.2 million expected consensus
  • Domestic streaming net adds: .670 million vs. 1.20 million expected by a StreetAccount estimate
  • International streaming net adds: 4.47 million vs. 5.00 million expected by a StreetAccount estimate

NFLX Subscriber Trend Q2 18

Netflix ended Q2 with $3.9B in cash and $8.3B in debt. The company reiterates it expects to continue raising debt to finance its content spend.

Guidance:

  • Forward guidance on Q3 EPS: 68 cents per share vs. 73 cents per share expected by a Thomson Reuters consensus estimate
  • Forward guidance on Q3 revenue: $ 3.988 billion vs. $4.13 billion expected by a Thomson Reuters consensus estimate
  • Forward guidance on streaming adds: 5 million vs. 6.00 million (650,000 domestic and 4.35 million international) expected by StreetAccount

NFLX Earnings Q2 18

Netflix First Quarter 2018 Earnings Recap

Earnings:

  • EPS of 64 cents adjusted matching 64 cents expected.
  • Revenueof $3.7 billion ahead of $3.69 billion expected by a Thomson Reuters consensus estimate

Reaction:

  • Netflix, Inc. NASDAQ: $NFLX After hours 328.94 +21.16 (+6.88%) Apr 16, 2018)

NetFlix Q1 2018 Subscriber Highlights

  • Total streaming net adds: 7.41 million vs. 6.5 million expected by a StreetAccount consensus
  • Domestic streaming net adds: 1.96 million vs. 1.48 million expected by a StreetAccount estimate
  • International streaming net adds: 5.46 million vs. 5.02 million expected by a StreetAccount estimate

Guidance:

  • Forward guidance on Q2 EPS: 79 cents per share vs. 65 cents per share expected by a Thomson Reuters consensus estimate
  • Forward guidance on Q2 revenue: $3.9 billion vs. $3.89 billion expected by a Thomson Reuters consensus estimate
  • Forward guidance on net adds: 6.2 million vs. 5.24 million (974,000 domestic and 4.27 million international) expected by StreetAccount

Note: On Oct. 5 last year $NFLX raised its U.S. Standard and Premium plans by $1 and $2 per month, respectively, to $11 and $14. In 2016 $NFLX has said price hikes for customers previously grandfathered in at lower prices hurt subscriber growth for a while. The marketplace appears to have absorbed current prices.

Content Library and Costs

Walt Disney Co. $DIS has said it will pull its films off Netflix by 2020 end and launch it's own streaming service in 2019 that will become the exclusive home for Disney, Pixar, Marvel and Star Wars films.
 
Millarworld 1
 
Netflix has also made moves on this front with it's First Acquisition With Comic Publisher Millarworld. $NFLX plans to spend $7 billion on content in 2018.
 
Source: NetFlix, TradersCommunity, AlphaStreet

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