Netflix (NFLX 401.51, +5.71, +1.44%) will report second quarter results in a
Letter to Shareholders on its website soon after the bell. The earnings
interview with management including Chief Executive Reed Hastings starts at
Netflix has guided for second quarter EPS of $0.79 (vs. $0.15 last year) with an operating margin of 12% and revenue up 41% to $3.93 bln.
Netflix also guided for 6.2 mln global net subscriber additions (1.2 mln in the US and 5.0 mln for the international segment) vs. 5.2 mln in the year ago quarter.
The stock is up 108% year-to-date as the company has surprised in terms of subscriber metrics in recent quarters but a number of sell side firms have been cautious regarding that metric heading into Q2 results this afternoon.
On Thursday, July 12, the stock fell after UBS downgraded the stock to Neutral based on the lofty valuation.
Also on Thursday, B. Riley FBR noted search growth for ‘Netflix' and new Netlfix shows slowed in Q2; they remain Neutral on the stock.
On Friday, July 13, Deutsche Bank said it sees more downside than upside to Q2 subscriber estimates. The firm has a Buy rating but the $360 target is actually below the current stock price.
This morning, Buckingham Research downgraded the stock to Under-perform with a $333 tgt.
The Street expects third quarter EPS of $0.71 (vs. $0.29 last year) with revenue up 38% and ~5.6 mln net subscriber additions.
Netflix's guidance for fiscal 2018 includes an operating margin of 10-11%, with $7.5-8.0 bln of content expense and free cash flow burn of $3-4 bln.
Netflix has a whopping $180 bln market value and trades at almost 90x EBITDA estimates, ~140x EPS estimates and 11x revenue estimates. The parabolic move in the stock this year has many believing its priced to perfection. The extreme valuation metrics are the result of the disruption Netflix caused in the media sector. Traditional media companies licensed Netflix their content, allowing it to kick-start its streaming service. Netflix has since created its own content resulting in an over-the-top streaming service that has essentially supplanted the traditional cable bundle for younger audiences. Of course, the rise of social media has also played a part in the malaise of traditional media companies. The options market implies a ~9% move in the stock in reaction to earnings.
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