Why Netflix, Inc. (NFLX) Stock Could Pop After Q4 Earnings

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Internet movie streaming giant Netflix, Inc. (NASDAQ:NFLX) will report fourth-quarter 2016 earnings results after the closing bell Wednesday. And given the the history of NFLX stock — which tends to move some 12% to 18% in any direction after earnings — well … investors should get their popcorn ready.

Why Netflix, Inc. (NFLX) Stock Could Pop After Q4 Earnings

With Netflix now available in more than 130 countries, the Los Gatos, Calif.-based company wants to take over the world. But taking over the world costs money — something that has pressured NFLX stock in the past.

And with Netflix’s plans to ramp up spending on content to separate itself from the competitors such as Hulu and and Amazon.com, Inc.’s (NASDAQ:AMZN) Prime video, analysts will focus on Netflix’s 2017 guidance, looking for any clue suggesting it will focus on higher margins that can boost NFLX stock.

Netflix Q4 Earnings Expectations

For the quarter that ended December, Wall Street estimates Netflix will report earnings of 13 cents per share on revenue of $2.47 billion, translating to year-over-year growth of 30% and 35%, respectively. For the full year, earnings are projected to rise 46% YOY to 41 cents per share, while full-year revenue of $8.82 billion would mark an increase of 30%.

With U.S. streaming subscribers now approaching a level of saturation, global expansion becomes more critical to Netflix and NFLX stock, especially at a time when over-the-top services from Time Warner Inc‘s (NYSE:TWX) HBOGo and Viacom, Inc.‘s (NASDAQ:VIA, NASDAQ:VIAB) Showtime Anytime are picking up steam.

But to mitigate these types of threats, including the the pressures from Hulu and Amazon, Netflix last year struck deals with cable companies like Comcast Corporation (NASDAQ:CMCSA) to bundle its service with cable TV to accelerate growth.

Investments Are Paying Off

However, Netflix remains focused on global growth and better content. NFLX says it will increase its hours of original programming to 1,000 in 2017, from 600 in 2016. And while that implies higher spending and lower Netflix earnings, JPMorgan analyst Doug Anmuth is not concerned.

“We believe Netflix sets up as a cleaner story into 2017 with pricing changes behind, revenue accretion from higher (average selling prices), stronger content and increased global profitability,” Anmuth wrote in a note to clients. “Importantly, we think Netflix can add more U.S. and international subscribers in 2017 than 2016.”

Netflix, which in the third quarter added 3.2 million international subscribers versus 370,000 new domestic subscribers, believes international expansion is where it can get the best return on its investments.

What’s more, Netflix’s price increase for grandfathered subscribers — a popular-cited bearish concern — didn’t impact its subscribers totals as some analysts predicted.

The fact that Netflix’s third-quarter churn rate of the 2.6%, which beat consensus estimates which ranged from 3% to 5%, suggests Netflix’s spending on content has made the service more addictive.

Bottom Line for NFLX Stock

The Netflix stock price has risen more than 10% in the trailing 12-month period, including a 35% run in the past three months that dwarfs the 6% gains by the S&P 500.

With fiscal 2017 EPS estimates of 94 cents per share, calling for a more than 90% rise on 25% increase in revenue, NFLX stock should reach $150 to $155 in the next 12 to 18 months, delivering some 15% returns.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/01/why-netflix-inc-nflx-stock-could-pop-after-q4-earnings/.

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