This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Netflix Investors: Don't Be Wooed by an Earnings Beat

Stocks in this article: NFLX

Wible estimated that Netflix needs at least four streaming subscribers to account for the loss of one DVD user.

Bernstein Research analyst Carlos Kirjney said he expects domestic streaming margin should expand to 18% over the next three years from about 8% currently. But he believes this growth will be offset by erosion in the DVD business, estimating DVD subscribers in the U.S. will fall to 4.6 million by the end of 2016 from 10 million in the first quarter of 2012.

"We still believe the key issue for bullish or bearish investors should rest with Netflix's ability to scale the streaming business, increase price (again) and/or layer on new services," Wible wrote. "Without these incremental earnings drivers, we believe investors will find that Netflix does not generate nearly as much value per subscriber as it did only a few years ago. The rebound in subscribers may act as a near-term catalyst for the stock, but the first-quarter guidance will be paramount as it could trigger more earnings revisions."

The fourth quarter also will provide the first real insight into international demand. While Netflix only launched its streaming service in the U.K. and Ireland earlier this month, this will be the first full quarter of data for its Latin America and Caribbean service.

"We continue to believe that Latin America will provide a more realistic read of the company's strength outside of the U.S. than we would be able to see from the Canadian experience," B. Riley analyst Eric Wold wrote in a note. "While greater-than-expected subscriber demand internationally could mean higher losses initially than most have modeled, we believe that it would help to lessen investor concerns that Netflix is a U.S.-only story."

The problem is that Netflix's international strategy remains a looming question mark.

"The key will be further details on the timing and investment size of Netflix's international rollouts," Mahaney wrote. "But this is a major unknown in our model and will be driven in part by the company's elective decisions as to how far and how fast to expand internationally. There is also the risk that market and competitive conditions may cause Netflix to have to invest even more aggressively in the Latin America and U.K. and Ireland markets."

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs