The leading company in streaming video, Netflix, Inc. (NASDAQ:NFLX), will report earnings for its fiscal first-quarter on Wednesday, April 15, after markets close.
NFLX stock has been on an absolute tear this year, up 39% already in 2015 as the company’s fourth-quarter earnings blowout gave Netflix shares tons of momentum.
Can NFLX repeat its most recent showing on Wednesday and drive its stock price even higher? We’ll have to wait and see.
Here’s what analysts expect from Netflix stock and what investors should look for in the upcoming report.
NFLX Stock Expectations
Due to rising content costs and currency headwinds, Wall Street expects Netflix to actually post lower bottom-line figures in the first quarter of 2015 than it did in the same period last year. Earnings per share came in at 86 cents in Q1 2014, but consensus estimates are calling for EPS of just 69 cents this year.
As for revenue, NFLX stock would absolutely crater if the top line fell in the first quarter. Figures from 37 different Wall Street analysts shows revenues roaring an average of 24% higher to $1.57 billion as U.S. and international member growth continue to drive sales.
Considering the fact that Netflix stock has beaten consensus EPS estimates in six of the last seven quarters, I wouldn’t be surprised to see another bottom-line beat on Wednesday. The “whisper number” — the unofficial EPS expectations of Wall Street insiders — seems to confirm that trend, clocking in at 71 cents per share.
And for what it’s worth, NFLX stock is also getting a lot of analyst love in the days before its earnings release: Both UBS and Citi upgraded NFLX stock from “neutral” to “buy,” with revised per-share price targets of $565 and $525, respectively. NFLX stock was up more than 4% on the upgrades Monday.
The big question going into Netflix earnings surrounds cost control. Much of NFLX stock’s future growth potential will come from overseas markets; international revenues soared 84% to $1.3 billion in 2014. But the vast majority of current revenue still comes from the U.S., where Netflix hauled in more than $3.4 billion in 2014 as its domestic segment grew 25% year-over-year.
Given the revenue breakdown, the U.S. is where cost control will be most important. Last year Netflix drove member growth at a 17% rate, but saw domestic cost of revenues rise by 18%. With member growth in the U.S. already starting to decelerate, NFLX necessarily needs to spend even less on content or continue on an unsustainable path that will eventually erode domestic profits entirely.
Although NFLX stock has been an amazing performer for long-term investors, increased streaming competition from Amazon.com, Inc. (NASDAQ:AMZN) and content producers themselves is driving the cost of content ever higher, just as Netflix needs to bring its costs down.
When Netflix reports earnings on Wednesday, we should gain a better understanding of how those efforts are going.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
