The Q3 2014 earnings report for large cap Netflix, Inc (NASDAQ: NFLX), who's potential performance peers or competitors include Amazon.com, Inc (NASDAQ: AMZN) and small cap Outerwall Inc (NASDAQ: OUTR) which owns the Redbox business, is scheduled for after the market closes on Wednesday (October 15). Aside from the Netflix, Inc earnings report, it should be said that Amazon.com, Inc will report Q3 2014 earnings after the market closes on October 23rd (Thursday) and small cap Outerwall Inc will report Q3 2014 earnings after the market closes on October 30th. The last time around, Netflix, Inc reported a big increase in profits as subscribers hit the 50 million mark.
What Should You Watch Out for With the Netflix, Inc Earnings Report?First, here is a quick recap of Netflix, Inc's recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page:
| EPS Est | 0.49 | 0.66 | 0.83 | 1.16 |
| EPS Actual | 0.52 | 0.79 | 0.86 | 1.15 |
| Difference | 0.03 | 0.13 | 0.03 | -0.01 |
| Surprise % | 6.10% | 19.70% | 3.60% | -0.90% |
| Current Estimate | 0.93 | 0.85 | 3.81 | 6.48 |
| 7 Days Ago | 0.93 | 0.87 | 3.84 | 6.59 |
| 30 Days Ago | 0.91 | 0.88 | 3.87 | 6.63 |
| 60 Days Ago | 0.91 | 0.89 | 3.88 | 6.60 |
| 90 Days Ago | 1.06 | 0.97 | 4.10 | 6.82 |
Back in July, Netflix, Inc reported that third quarter revenue rose to $1.34 billion from $1.07 billion while net income rose to $71 million, or $1.15 per share, from $29.5 million, or 49 cents per share, a year earlier. In addition, the company reported having over 50 million members in over 40 countries as the US member base grew to more than 36 million on the strength of improving content offerings (including Orange is the New Black Season 2) and despite a $1 price increase (current subscribers get a 2 year break) while international membership grew 78% to 13.8 million.
In September, Netflix, Inc said it would launch Netflix in Germany, France, Austria, Switzerland, Belgium and Luxembourg where there are over 60 million broadband households. This launch would significantly increase Netflix, Inc's European presence and raise the current international addressable market to over 180 million broadband households, or 2x the number of current US broadband households.
After earnings, JPMorgan raised its price target for Netflix, Inc shares to $550 citing the solid Q2 results with continued international subscription strength. They also reiterated an Overweight rating on the stock.
Piper Jaffray said Netflix, Inc's Q2 results were solid and would have a positive bias on shares over the near-term. However, Piper Jaffray kept a Neutral rating on the stock and a $434 price target, saying investors will eventually be concerned about domestic saturation and that much of the easy gains in international may have already been made.
Bank of America analyst Nat Schindler maintained his Underperform rating (albeit he raised his price target from $246 to $294) saying the company's second quarter was in-line and there was "nothing to change the minds of bulls or bears." He also predicted that Netflix, Inc won't break-even internationally until the fourth quarter of 2015 - assuming no further market expansion.
Sterne Agee analyst Arvind Bhatia has a neutral rating on Netflix, Inc and while he believes the company has a solid business model and high expectation for strong growth in coming years, the real question is "what is the company's true addressable market worldwide?" Netflix, Inc executives have cited 700-800 million broadband households (including 200 million in China) as their addressable market and that there are 90 million broadband households in USA where the company has 36 million subscribers.
What do the Netflix, Inc Charts Say?The latest technical chart for Netflix, Inc shows a big dip in the spring time and then a more steady performance during the summer:
A long term performance chart shows that Netflix, Inc has really outperformed Amazon.com, Inc and small cap Outerwall Inc – if you ignore the late 2011 and 2012 periods when an unpopular price increase in July 2011 had both customers and investors alike heading for the exits:
A technical chart for Amazon.com, Inc shows a downtrend since the start of the year while small cap Outerwall Inc was steady up until the summer when shares began to fall:
If you count the potential for international growth, Netflix, Inc probably won't hit the broadband ceiling for growth for at least a few more quarters. Nevertheless, Netflix, Inc will eventually hit that ceiling plus it will need to stay ahead of any potential competition by having unique, interesting and exclusive content to keep members – a task that won't be easy.
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