Netflix (NASDAQ: NFLX ) will release its quarterly report next Monday, and investors are firmly back in the bullish camp in expecting amazing growth from the streaming giant. But even as the stock approaches levels not seen since before the Qwikster debacle in 2011, its lofty valuation raises the question of whether Netflix earnings can grow fast enough to justify the stock's performance.
Netflix has emerged from its strategic shift stronger than ever, with its now-separate DVD and streaming options both bringing in subscriber revenue. As the company looks to expand, though, it's facing the same pressure to generate valuable, desirable content that the rest of the industry is experiencing. Let's take an early look at what's been happening with Netflix over the past quarter, and what we're likely to see in its quarterly report.
Stats on Netflix
| Analyst EPS Estimate | $0.40 |
| Change From Year-Ago EPS | 264% |
| Revenue Estimate | $1.07 billion |
| Change From Year-Ago Revenue | 20.6% |
| Earnings Beats in Past 4 Quarters | 3 |
Source: Yahoo! Finance.
How much can Netflix earnings grow this quarter?
Analysts have gotten quite a bit more excited about Netflix earnings in recent months, as they've boosted their June-quarter estimates by $0.11 per share, and their full-year calls for next year by twice that figure. The stock has continued soaring higher, rising more than 50% since mid-April.
A big portion of Netflix's gains came from its first-quarter earnings report, as the company continued its positive momentum with an 18% growth in revenue, and better-than-expected future guidance. With 3 million new subscribers, Netflix maintained its leadership of the space, even in the face of growing competition.
Netflix isn't without challenges, though. The biggest is coming up with content that viewers will pay to watch, and the content-deal tide has gone both ways for the company lately. A June deal with DreamWorks Animation (NASDAQ: DWA ) will give Netflix access to 300 hours of new programming, boosting its relationship, which already includes a series for kids based on the DreamWorks movie release Turbo, earlier this week. Yet, Netflix missed out on renewing a deal with Viacom, as Amazon.com scooped up exclusive rights to popular kids' shows like Dora the Explorer.
Netflix has also ramped up its non-kids content, bringing back Arrested Development, and coming up with new series like House of Cards and Orange Is the New Black. But whether it creates its own content or buys it from elsewhere, those moves are getting quite costly, as streaming-content liabilities rose 17% last year and appear poised to accelerate in the future, as media companies get savvier about charging full value for their valuable offerings. Moreover, Amazon has a large war chest, and has proven itself willing to invest in competing content of its own in trying to build up its own service's appeal.
Most recently, Netflix shares soared on news that competitor Hulu changed its original plans to sell itself. Instead, Disney and its partners in Hulu will make new investments to boost its prospects. But for Netflix, a Hulu sale would potentially have changed the status quo much more dramatically, and so investors appear to have concluded that even a Hulu with somewhat more financial resources represents less than a threat than a Hulu under new ownership.
In the Netflix earnings report, watch closely for news about how well the company is doing drawing subscribers both domestically and internationally. Growth in foreign markets is the real key to keeping Netflix's growth rate high enough to justify what has now become a premium valuation; but with the right efforts and attention, Netflix could well pull it off over the long run.
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