Netflix Inc. NFLX is set to report third-quarter 2017 results on Oct 16. The company has beaten the Zack Consensus Estimate thrice and missed it once in the past four quarters, delivering an average positive surprise of 28.6%.
Last quarter, the company reported earnings of 15 cents per share, which missed the Zacks Consensus Estimate of 16 cents. However, revenues increased 32.3% year over year to $2.786 billion and beat the consensus estimate of $2.761 billion. Subscriber growth primarily helped Netflix generate significant revenues.
Notably, shares of Netflix have gained 57.5% year to date, significantly outperforming the industry’s 12.6% rally.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Netflix has been drawing strength from its growing portfolio of original content. The company has also been ramping up its efforts to boost regional programming. This is expected to expand its international presence as the domestic market approaches saturation.
We believe the strength of its content portfolio will drive subscriber growth across the globe. Notably, apart from North America, the company has been doing really well in Latin America and Europe. Netflix is doing considerably well in India and Japan as well and has a lot of room for expansion in other Asian markets.
The company’s growing subscriber base is indicative of the fact that audiences are happy with its content. This is further evident from the latest survey conducted by RBC Capital Markets lead Internet analyst Mark Mahaney. Per the survey, 36% of Netflix’s surveyed subscribers mentioned that “Netflix's content is improving over its already strong position.”
Additionally, 67% of subscribers said that they were "extremely" or "very" satisfied with Netflix. In July, the company announced that it has 104 million subscribers globally. The company expects to have added 3.65 million subscribers in the international segment and 0.75 million subscribers in the domestic streaming segment in third-quarter 2017.
Recently, Netflix won 20 Emmy Awards out of the 91 categories that it was nominated in, compared with nine awards and 54 nominations last year. The award wins reflect the growing popularity of Netflix’s original content. The acquisition of comic book publisher Millarworld in August will further help the company to improvise on its contents.
However, investors need to watch out for high costs that accompany rapid international expansion and production of original content. The whopping budget of $6 million to be spent on original content this year might weigh on the bottom line. Also, stringent competition from established players like Amazon AMZN Prime, Hulu and Time Warner’s HBO is a major headwind.