From Zacks: It has been about a month since the last earnings report from Netflix, Inc. (NASDAQ:NFLX). Shares have added about 13.61 % in the past month, easily outperforming the S&P 500 in that time frame.
Will the recent positive trend continue leading up to their next earnings release, or is the stock due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Netflix Gains on Solid Q3 Earnings, Subscriber Growth
Netflix reported earnings of $0.12 per share in the quarter, well ahead of the Zacks Consensus Estimate of $0.06. In the prior-year quarter, the company had reported earnings of $0.07 a share.
The company’s total revenue rose 31.7% year over year to $2,290 million driven by higher revenues from both International and Domestic Streaming. Revenues also surpassed the Zacks Consensus Estimate of $2,280 million.
International Streaming revenues (37.3% of revenues) soared 65.1% year over year to $853.5 million driven by an increase in paid members.
Domestic Streaming revenues (57% of revenues) improved 22.6% from the year-ago quarter to about $1,304.3 million.
However, DVD revenues (5.8% of revenues) declined 16% year over year to $132.4 million.
In the quarter, Netflix recorded 3.57 million new members, bringing the total to approximately 86.7 million subscribers across the globe (guided range was 85.5 million). Paid streaming members totaled 83.3 million, up from 66 million in the prior quarter.
In the Domestic Streaming segment, Netflix’s subscriber base totaled 47.5 million, up from 47.1 million in the last quarter. Paid members increased to 46.5 million from 46 million in the last quarter.
In the International Streaming segment, the company recorded 39.2 million members compared with 36.5 million in the prior quarter. Paid members were approximately 36.8 million, up from 33.9 million at the end of the last quarter.
Consolidated contribution profit margin (revenues minus the cost of revenues and marketing cost) from the streaming business was 18.8% compared with 17.5% in the year-ago quarter.
Operating income (for both streaming and DVD business) surged 43.2% year over year to $106 million. Operating margin increased 50 basis points to 4.7%.
Net income was $52 million compared with $29 million in the year-ago quarter.
Cash used in operations in the quarter was $462 million compared with $196 million cash used in operations in the prior-year quarter. The company reported free cash outflow of $506 million.
Netflix’s total streaming content obligations increased to $14.4 billion from $10.4 billion in the year-ago quarter.
For the fourth quarter of 2016, management forecasts earnings of $0.13 per share and net income of $56 million.
Domestic and international streaming revenues are expected to be $1.4 billion and $947 million, respectively. Total streaming revenues are expected to be $2.34 billion.
Management expects to add 1.45 million subscribers in the domestic streaming segment and 3.75 million subscribers in the international segment. Domestic streaming contribution profit is expected to be $515 million. International streaming loss is expected to be $75 million due to higher marketing spend. Netflix estimates U.S. contribution margin to be around 36.9% in the quarter.
Netflix forecasts operating income of $125 million for the quarter.
How have estimates been moving since then?
Following the release and in the last month, investors have witnessed an upward trend for fresh estimates. In the past thirty days, there have been 12 revisions higher for the current quarter compared to zero lower. The consensus estimate has soared by 50.41 % due to these changes, as you can see in the chart below:
NETFLIX INC 12 Month EPS
At this time, Netflix stock has a poor Growth score of ‘F’, however, its momentum grade is doing a lot better with an ‘A’ on that front. Still, the stock was allocated a grade of ‘F’ on the value side, putting it in the bottom 20% for this investment strategy. Overall though, the fundamental picture for NFLX isn’t great, as the company has an ‘F’ grade for its broad VGM score thanks to its weakness from the growth and value looks.
The company’s stock is suitable soley for momentum based on our styles scores.
Not only have estimates have been trending upward for the stock, but the magnitude of these revisions looks promising too. Still, shares of Netflix have just a Zacks Rank # 3, so we are looking for an in-line performance for the stock in the months ahead
So although the company definitely has some nice catalysts going forward, we think NFLX is just a hold right now, and that investors may want to consider other choices in the space, or wait until some of the key metrics for NFLX improve before putting it on your radar.
This article is brought to you courtesy of Zacks Research.