Netflix Inc. (Nasdaq: NFLX) is coming off another big year of revenue growth and market gains, but it will take some impressive numbers to keep that momentum going when the company reports fourth-quarter earnings later this month.
Robert W. Baird analyst William Power says Netflix kept rolling in the right direction in the fourth quarter, but it will take a lot to impress the market at this point.
Based on data from its most recent U.S. penetration survey, Baird is expecting Netflix to report mostly in-line numbers across the board. The firm expects earnings per share of 41 cents on revenue of $3.3 billion. Wall Street consensus estimates are calling for EPS of 42 cents on revenue of $3.28 billion. Baird also expects net U.S. subscriber additions of 1.25 million and international net subscriber additions of 5 million. Power says international subscriber growth is “all that matters” for growth-hungry investors.
The bad news for Netflix investors is that expectations for nearly 40 percent revenue growth have set a high bar for the company to clear. After another 65 percent gain in the past year, Power says it will take a lot to impress the market.
“We remain positive on the subscriber growth and growing arsenal of original content, but also view valuation as fair in light of increasing competitive threats and significant ongoing cash burn,” Power says.
Power says investors should expect a limited impact from Netflix’s recent price increases, although the hikes may have marginally increased fourth-quarter churn.
But while Power is skeptical of Netflix’s near-term upside, other analysts say the long-term story is still going according to plan. In December, GBH Insights head of technology research Daniel Ives said Netflix investors should keep an eye on competition from Walt Disney Co, (DIS), Comcast Corp. (CMCSA) and others, but he sees no evidence that the Netflix train is slowing down in 2018.
“Our bullish thesis on Netflix is based on our belief that the company’s competitive moat, franchise appeal, ability to increase international streaming customers through 2020, and original content build out will translate into robust profitability and growth as the next phase of this story plays out over the coming year,” Ives says.
Baird has…
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