Netflix, Inc. (NASDAQ: NFLX)
Consensus EPS Estimate for FQ3 2019 is $1.05 (+55.43% YoY)
Consensus Revenue Estimate for FQ3 2019 is $5.25B (+31.22% YoY)
EPS revisions past 90 days include 17 upward and 10 downward.
Revenue revisions past 90 days include 17 upward and 12 downward.
NFLX is set to report 3Q 2019 on October 16, 2019 AMC. NFLX is down -22.82% for the QTR and YTD is up 5.70%. NFLX has under performed in 2019 due to increased worries regarding rising video streaming competition and increased content costs.
NFLX has reported higher than expected EPS for the last four quarters. Last quarter, despite beating on EPS, 2Q subscriber adds were below NFLX’s guidance. The NFLX story is always driven by subscriber growth. In 2Q 2019, NFLX saw a slowdown in subscriber growth from seasonality after a very strong 1Q 2019 subscriber growth number. NFLX had also implemented increased pricing in several regions which elevated churn rates and finally, NFLX had lower content slate in 2Q 2019. Thus, the stock sold off hard. The analyst community bailed on NFLX and the stock’s current market capitalization reflects this loss of confidence. NFLX is now a show-me story stock.
Competition
Disney+ Plus and Apple+ Plus are both set to launch exciting new streaming services in November adding more choices for consumers.
NFLX has faced competition for many years in many forms; AMZN Prime, GOOG YouTube, Hulu, various TV cable bundles, HBO, Showtime, DisneyNow, etc. Wall Street has a long history of overestimating competitive threats for many companies. The choice of one’s cable provider has often controlled the access to certain content. In our opinion, the traditional cable provider has the biggest revenue line that is far more vulnerable to the various streaming choices moving forward. All the new streaming services basically bypass the cable operator and offer the consumer the choice to connect and disconnect directly with the content providers.
Per several surveys, existing NFLX subscribers are already streaming multiple video services. Many households have churned on and off HBO directly for access to GoT the last few years. Many households do not have current plans to try Disney Plus. At some point in the future, some households may try the Disney Plus service and binge watch a few things on it but are not certain they will keep the service. Many households have Prime for free and yet don’t watch it much. Many households have tried Hulu. Many households watch YouTube and more have indicated interest in subscribing to the add free version. The one service provider that households have continued to reduce monthly budgets for over the last five years is the traditional cable provider.
Content Costs Rise and Content Matters
The cost of content has risen for streaming providers. The rights to existing content have risen and become more important. Creating original content and having scale has become more important and all of this implies the barriers for entry in the video streaming have risen. Who survives, only the strong, in our opinion NFLX is a survivor. NFLX has built amazing capacity for content, its products have never been in better shape and on a show-by-show basis or film-by-film basis it continues to hit new heights in terms of viewer penetration and audience reach. Stronger content means it has a stronger service.
Analysts are all cautious
Bank of America, Evercore ISI, Goldman Sachs, Monness Crespi Hardt, and Rosenblatt Securities all lowered price targets and estimates on NFLX ahead of earnings.
Web Data implies the International subscriber numbers have bounced back
Business Insider and SimilarWeb both published reports indicating that the International subscriber growth has bounced back in Q3 2019.
3Q Earnings
NFLX is all about net adds, analysts are looking for 802,000 additional subscribers domestically and 6.2 million additional subscribers internationally. The company continues to believe its net adds will be larger than last year. IVs on NFLX options imply a move up or down of 27.4 points or 9.6% this week. In our opinion, NFLX is a bit of a toss up heading into earnings. Q3 2019, growth appears to have reaccelerated again for NFLX via various accessible web data trends. Content launches increased in Q3 2019 over Q2 2019. The bulk of the pricing increases are behind NFLX. Revenue growth is expected to continue to accelerate over Q2. Analysts are all cautious about the stock and the stock has underperformed the market and is down heading into this report. The company has never missed on subscriber numbers two quarters in a row.
We will have our final call in our live trading group and annouced before close of end of day.
Zacks rates NFLX a 4 Sell and it gives NFLX a 0.00% Earnings ESP.
EarningsWhispers shows 49% expect earnings beat and 50% expect price sentiment to rise.
Insiders have been overall net sellers of the stock over the last six months.
Disclaimer: Nothing is the blog post should be taken as investment advice, this is for educational purposes only. 👍 If your looking to join our 🍍 live trading group where we will be discussing Netflix ($NFLX) and other trade ideas click sign up in the menu above!