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Why Is Netflix (NFLX) Down 5.3% Since the Last Earnings Report?
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It has been about a month since the last earnings report for Netflix, Inc. (NFLX - Free Report) . Shares have lost about 5.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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.
Recent Earnings
Netflix reported third-quarter 2017 earnings of 29 cents per share, which missed the Zacks Consensus Estimate of 32 cents, but grew 141.7% on a year-over-year basis. Revenues of $2.985 billion increased 30.3% year over year and came ahead of the consensus estimate of $2.973 billion.
Moreover, the company added 5.3 million subscribers, much more than the expected 4.4 million.
Netflix’s focus on international expansion and original regional content has paid off, with 4.45 million overseas net new additions in the quarter. The company also reported profit from the international operations this quarter.
The company remains confident of adding more subscribers as the trend of binge viewing is catching up fast. Netflix now has 109.3 million subscribers globally.
The third quarter had a strong programming slate, with popular shows likeNarcos and Fuller House returning for new seasons and new releases like Ozark, Nick Stoller’s Friends from College and Marvel’s The Defenders. The company’s portfolio of original films also improved with the addition of Death Note, Naked and To the Bone to its platform this quarter.
Segment Revenues
International Streaming revenues (44.5% of total revenue) soared 55.6% year over year to $1.327 billion driven by an increase in paid members.
Domestic Streaming revenues (51.8% of total revenue) improved 18.6% from the year-ago quarter to about $1.547 billion.
However, the DVD business continues to be in trouble, with revenues (3.7% of total revenue) declining 16.7% year over year to $110 million.
Subscriber Base
At the end of the quarter, Netflix's paid streaming members across the globe were approximately 104 million, up from 83.28 million in the prior-year quarter.
In the Domestic Streaming segment, Netflix’s subscriber base totaled 52.77 million, up from 47.5 million in the year-ago quarter. Paid members increased to 51.35 million from 46.48 million in the same period.
In the International Streaming segment, the company recorded 56.48 million members compared with 39.25 million in the prior-year quarter. Paid members were approximately 52.68 million, up from 36.8 million in the year-ago quarter.
Margins
Consolidated contribution profit margin (revenues minus the cost of revenues and marketing cost) was 22.8% compared with 20.8% in the year-ago quarter.
Consolidated operating income grew 96.7% year over year to $208.6 million. Consolidated operating margin increased 240 basis points (bps) to 7%.
Balance Sheet
Netflix had $1.746 billion in cash and cash equivalents as of Sep 30, 2017 compared with $1.734 billion as of Dec 31, 2016.
Cash used in operations in the quarter was $419.6 million compared with $461.9 million used in operations in the prior-year quarter. The company reported free cash outflow of $464.9 million.
Outlook
For the fourth quarter of 2017, management forecasts earnings of 41 cents per share.
Domestic and international streaming revenues are expected to be $1.616 billion and $1.553 billion, respectively. Total streaming revenues are expected to be $3.169 billion while total revenue, including the DVD business, is anticipated to be $3.274 billion.
Management expects to add 1.25 million subscribers in the domestic streaming segment and 5.05 million subscribers in the international segment. Netflix estimates the U.S. contribution margin to be around 34.4% in the quarter.
The company forecasts total operating income of $238 million for the quarter.
Netflix plans to release 80 original movies in 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been 11 revisions higher for the current quarter compared to one lower. While looking back an additional 30 days, we can see even more upward momentum. In the past month, the consensus estimate has shifted up by 27.6% due to these changes.
VGM Scores
At this time, the stock has a subpar Growth Score of D, however its Momentum is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Why Is Netflix (NFLX) Down 5.3% Since the Last Earnings Report?
It has been about a month since the last earnings report for Netflix, Inc. (NFLX - Free Report) . Shares have lost about 5.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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.
Recent Earnings
Netflix reported third-quarter 2017 earnings of 29 cents per share, which missed the Zacks Consensus Estimate of 32 cents, but grew 141.7% on a year-over-year basis. Revenues of $2.985 billion increased 30.3% year over year and came ahead of the consensus estimate of $2.973 billion.
Moreover, the company added 5.3 million subscribers, much more than the expected 4.4 million.
Netflix’s focus on international expansion and original regional content has paid off, with 4.45 million overseas net new additions in the quarter. The company also reported profit from the international operations this quarter.
The company remains confident of adding more subscribers as the trend of binge viewing is catching up fast. Netflix now has 109.3 million subscribers globally.
The third quarter had a strong programming slate, with popular shows likeNarcos and Fuller House returning for new seasons and new releases like Ozark, Nick Stoller’s Friends from College and Marvel’s The Defenders. The company’s portfolio of original films also improved with the addition of Death Note, Naked and To the Bone to its platform this quarter.
Segment Revenues
International Streaming revenues (44.5% of total revenue) soared 55.6% year over year to $1.327 billion driven by an increase in paid members.
Domestic Streaming revenues (51.8% of total revenue) improved 18.6% from the year-ago quarter to about $1.547 billion.
However, the DVD business continues to be in trouble, with revenues (3.7% of total revenue) declining 16.7% year over year to $110 million.
Subscriber Base
At the end of the quarter, Netflix's paid streaming members across the globe were approximately 104 million, up from 83.28 million in the prior-year quarter.
In the Domestic Streaming segment, Netflix’s subscriber base totaled 52.77 million, up from 47.5 million in the year-ago quarter. Paid members increased to 51.35 million from 46.48 million in the same period.
In the International Streaming segment, the company recorded 56.48 million members compared with 39.25 million in the prior-year quarter. Paid members were approximately 52.68 million, up from 36.8 million in the year-ago quarter.
Margins
Consolidated contribution profit margin (revenues minus the cost of revenues and marketing cost) was 22.8% compared with 20.8% in the year-ago quarter.
Consolidated operating income grew 96.7% year over year to $208.6 million. Consolidated operating margin increased 240 basis points (bps) to 7%.
Balance Sheet
Netflix had $1.746 billion in cash and cash equivalents as of Sep 30, 2017 compared with $1.734 billion as of Dec 31, 2016.
Cash used in operations in the quarter was $419.6 million compared with $461.9 million used in operations in the prior-year quarter. The company reported free cash outflow of $464.9 million.
Outlook
For the fourth quarter of 2017, management forecasts earnings of 41 cents per share.
Domestic and international streaming revenues are expected to be $1.616 billion and $1.553 billion, respectively. Total streaming revenues are expected to be $3.169 billion while total revenue, including the DVD business, is anticipated to be $3.274 billion.
Management expects to add 1.25 million subscribers in the domestic streaming segment and 5.05 million subscribers in the international segment. Netflix estimates the U.S. contribution margin to be around 34.4% in the quarter.
The company forecasts total operating income of $238 million for the quarter.
Netflix plans to release 80 original movies in 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been 11 revisions higher for the current quarter compared to one lower. While looking back an additional 30 days, we can see even more upward momentum. In the past month, the consensus estimate has shifted up by 27.6% due to these changes.
VGM Scores
At this time, the stock has a subpar Growth Score of D, however its Momentum is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.