Stock Market News – Netflix subscriber growth to bounce back? Earnings season fires up
October 15, 2018 3:26 pm
Netflix’s earnings report for Q3 2018 will be made public after Tuesday’s closing bell on Wall Street. The consensus recommendation for the company is “buy”, which is in line with the average consensus recommendation for the Online Services peer group.
The provider of subscription-based streaming services is anticipated to have made $0.68 in earnings per share (EPS) during the quarter ending in September, according to Thomson Reuters estimates; this is a projection that has remained unchanged over the last four weeks. If actual numbers confirm expectations, this would constitute an increase of 134.5% compared to last year’s respective quarter when the firm earned $0.29 per share. Meanwhile, analysts’ EPS forecasts range from $0.63 to $0.74. In terms of recent earnings history, Netflix’s results matched analysts’ estimates twice in the four preceding quarters, fell short of them once and came in as a beat in the remaining one.
More closely watched though will be subscriber growth figures, especially in the aftermath of last quarter’s miss, which was the first in five quarters and was met with a selloff in the stock (see chart below). Management guidance puts subscriber additions during Q3 at 5.0 million, 0.65mn coming from the US and 4.35mn from overseas, which illustrates how important international markets are for the corporation. This is conservative relative to FactSet’s 5.32mn net additions. Company guidance on subscriptions moving forward is also of value to investors and can affect the share price. On this front, any comments on plans to grow in India – the country Netflix CEO Hastings said would constitute a major source for the platform’s expansion earlier in the year – will also be attracting interest.
Elsewhere, FactSet sees the corporation’s revenues at $4.0 billion in Q3, up from roughly $3.0bn in 2017’s equivalent quarter.
Technically, the stock is looking mostly bearish in the short term. Attesting to this, the RSI has been declining overall over the last couple of weeks, with the shares trading considerably below a three-month high of $386.80 touched on October 2. Still, it is of note that the indicator is attempting a rebound which might be an early sign of changing momentum. In relation to the medium-term picture, the price falling below both the 50- and 100-day moving average lines definitely constitutes a tilt towards a bearish outlook. Notice though, that neither MA maintains a steep negative slope; the outlook may be negative, but not decisively so.
Encouraging results, especially on subscriber growth, are expected to boost the shares. A first line of resistance to advances could take place around the 50- and 100-day MAs at $354.26 and $365.75 correspondingly. Further above, early October’s three-month peak of $386.80 would be eyed. Higher still, the attention would turn to the $400 round figure which may hold psychological importance. Conversely, disappointing numbers exerting downside pressure on the stock may meet support around Friday’s near two-month low of $315.81; the zone around this captures another bottom from the recent past at $310.93. Steeper losses may meet support at April’s low of $292.62, given that the $300 handle, which could be of significance as well, is violated first.
Turning to valuation considerations, at 81.4, the firm’s forward PE ratio (price over forecasted earnings over the next twelve months) is much higher than the corresponding numbers for its sector and the market overall. Netflix’s relatively high PE might be a testament of its strong growth prospects or act as a signal of an overpriced stock (or a combination of the two). In terms of prospects, one thing’s for sure, the entertainment giant is hugely invested in new projects. Evidently, it is spending billions of dollars in 2018 on 700 (yes, 700!) original series. Whether these investments will pay-off is another question.
Netflix is up by a staggering 76.9% year-to-date, which compares to the S&P 500’s equivalent performance of +3.7% and the Nasdaq 100’s +11.9%. More specifically, it is the S&P’s fourth best performing stock behind Advanced Micro Devices (+156.2%), Abiomed (+105.3%) and Fortinet (+83.0%), while it is the Nasdaq 100’s lead gainer.
With the earnings season well underway, other big names on tap on Tuesday are BlackRock, Goldman Sachs, Morgan Stanley and Johnson & Johnson. In contrast to Netflix, all these will be reporting quarterly results before the US stock market open. Lastly, despite Treasury yields easing somewhat from the cycle highs hit not long ago, yield angst remains in the background and may continue acting to the detriment of equities. The same holds true on worries having to do with Sino-US trade relationships.
Netflix’s earnings report for Q3 2018 will be made public after Tuesday’s closing bell on Wall Street. The consensus recommendation for the company is “buy”, which is in line with the average consensus recommendation for the Online Services peer group.
The provider of subscription-based streaming services is anticipated to have made $0.68 in earnings per share (EPS) during the quarter ending in September, according to Thomson Reuters estimates; this is a projection that has remained unchanged over the last four weeks. If actual numbers confirm expectations, this would constitute an increase of 134.5% compared to last year’s respective quarter when the firm earned $0.29 per share. Meanwhile, analysts’ EPS forecasts range from $0.63 to $0.74. In terms of recent earnings history, Netflix’s results matched analysts’ estimates twice in the four preceding quarters, fell short of them once and came in as a beat in the remaining one.
More closely watched though will be subscriber growth figures, especially in the aftermath of last quarter’s miss, which was the first in five quarters and was met with a selloff in the stock (see chart below). Management guidance puts subscriber additions during Q3 at 5.0 million, 0.65mn coming from the US and 4.35mn from overseas, which illustrates how important international markets are for the corporation. This is conservative relative to FactSet’s 5.32mn net additions. Company guidance on subscriptions moving forward is also of value to investors and can affect the share price. On this front, any comments on plans to grow in India – the country Netflix CEO Hastings said would constitute a major source for the platform’s expansion earlier in the year – will also be attracting interest.
Elsewhere, FactSet sees the corporation’s revenues at $4.0 billion in Q3, up from roughly $3.0bn in 2017’s equivalent quarter.
Technically, the stock is looking mostly bearish in the short term. Attesting to this, the RSI has been declining overall over the last couple of weeks, with the shares trading considerably below a three-month high of $386.80 touched on October 2. Still, it is of note that the indicator is attempting a rebound which might be an early sign of changing momentum. In relation to the medium-term picture, the price falling below both the 50- and 100-day moving average lines definitely constitutes a tilt towards a bearish outlook. Notice though, that neither MA maintains a steep negative slope; the outlook may be negative, but not decisively so.
Encouraging results, especially on subscriber growth, are expected to boost the shares. A first line of resistance to advances could take place around the 50- and 100-day MAs at $354.26 and $365.75 correspondingly. Further above, early October’s three-month peak of $386.80 would be eyed. Higher still, the attention would turn to the $400 round figure which may hold psychological importance. Conversely, disappointing numbers exerting downside pressure on the stock may meet support around Friday’s near two-month low of $315.81; the zone around this captures another bottom from the recent past at $310.93. Steeper losses may meet support at April’s low of $292.62, given that the $300 handle, which could be of significance as well, is violated first.
Turning to valuation considerations, at 81.4, the firm’s forward PE ratio (price over forecasted earnings over the next twelve months) is much higher than the corresponding numbers for its sector and the market overall. Netflix’s relatively high PE might be a testament of its strong growth prospects or act as a signal of an overpriced stock (or a combination of the two). In terms of prospects, one thing’s for sure, the entertainment giant is hugely invested in new projects. Evidently, it is spending billions of dollars in 2018 on 700 (yes, 700!) original series. Whether these investments will pay-off is another question.
Netflix is up by a staggering 76.9% year-to-date, which compares to the S&P 500’s equivalent performance of +3.7% and the Nasdaq 100’s +11.9%. More specifically, it is the S&P’s fourth best performing stock behind Advanced Micro Devices (+156.2%), Abiomed (+105.3%) and Fortinet (+83.0%), while it is the Nasdaq 100’s lead gainer.
With the earnings season well underway, other big names on tap on Tuesday are BlackRock, Goldman Sachs, Morgan Stanley and Johnson & Johnson. In contrast to Netflix, all these will be reporting quarterly results before the US stock market open. Lastly, despite Treasury yields easing somewhat from the cycle highs hit not long ago, yield angst remains in the background and may continue acting to the detriment of equities. The same holds true on worries having to do with Sino-US trade relationships.
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