Is Netflix Dancing Fast Enough? Imminent Q4 Results Will Tell

Streaming leader Netflix remains under intense scrutiny as the competitive onslaught from Disney+ and other players ramps up.

The industry finds itself in suspense each quarter, as rampant speculation surrounds the streamer’s upcoming earnings release.

Today is such a day, with Netflix set to report earnings after the market close.

So what’s the speculation this time? Generally more positive than in recent previous quarters.

Netflix’s failure to hit expected subscription growth targets in the past two quarters contributed to a total return of -3.5% over the past 12 months, versus a 25.7% total return for the S&P 500, points out Investopedia’s Matthew Johnston. The company’s second-quarter 2019 earnings exceeded analysts' expectations by 7%, yet its shares fell dramatically because the earnings were 29% below the previous year’s second quarter.

Although the third quarter brought a considerably stronger earnings report, with EPS exceeding analysts’ forecasts by 41%, and year-over-year revenue up 31%, Netflix’s stock has risen just 0.2% in the past 12 months, as its FAANG cohorts’ stock prices have all risen by double or even triple digits.



However, although more competition — including NBCUniversal’s Peacock and AT&T’s HBO Max — is on the way, analysts seem to think that Netflix is poised for a rebound, having gone through the November Disney+ and Apple TV+ launches.

In fact, Netflix’s stock actually rose 16% after the Disney+ launch, points out MarketWatch’s Jon Swartz.

Swartz also cites several largely positive takes by analysts.

Goldman Sachs yesterday upped its Netflix price target by $50, to $450, in part based on its projection that its fourth-quarter subscriptions will blow past the company’s growth guidance of 7.6 million, to increase by 9.7 million.

While acknowledging that the competitive launches may well continue to cause some quarterly volatility and under-performance in relation to other big tech stocks, both Stifel internet analyst Scott Devitt and Monness Crespi Hardt analyst Brian White expressed long-term optimism about Netflix in recent investor notes.

Still, the consensus projections for Netflix’s EPS for Q4 are considerably lower than the 83 cents per share projected at the quarter’s start: 52 cents and 57 cents in analyst surveys by FactSet and Estimize, respectively.

Some worry that given its sole reliance on subscriber revenue, Netflix’s spending on content development — up $2 billion this year from last, to $17.3 billion, by a BMO Capital Markets estimate — could force it to make subscriber-alienating price hikes to protect its bottom line.

But as eMarketer forecasting analyst Eric Haggstrom points out, Netflix seems to have little choice in the current scenario. “Netflix needs to continue to produce hit movies and must-watch shows in order compete for viewers’ time and wallets in the face of competition from Disney, Apple and others,” he says.

The buzz factor from Netflix leading the pack with 24 Academy Awards nominations — including best picture nominations for “The Irishman” and “Marriage Story” — is also expected to boost its ongoing push to grow paid subs.

Importantly, given the tougher prospects for growth in the U.S., Netflix is also firing on all cylinders on a global basis.

Keeping up with Netflix’s expansions on the international front could be a full-time job. In the past day alone, Netflix’s news on the global front has included extending its deal with Sky TV and adding a paid basic Netflix sub option for Sky Q subscribers, and opening a new hub in Paris, reflecting its plans for more than 20 French productions this year.

Netflix was found to be the SVOD leader in nearly all 16 countries included in an Ampere Analysis last year.

And for this year’s fourth quarter, analysts surveyed by FactSet are predicting that international subscriptions grew by 7.2 million in the fourth quarter, versus 623,000 in the U.S.

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