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Netflix's House of Cards

Updated from 8:26 a.m. to include survey information regarding NPD survey in the ninth paragraph.

NEW YORK (TheStreet) -- Netflix (NFLX - Get Report) reports fourth-quarter results after the close of trading Wednesday, with all eyes on the domestic streaming number. Considering comments made by CEO Reed Hastings following the last earnings call and Netflix's incredible share price run in 2013, the Los Gatos, Calif.-based company may have a hard time with this sequel.

During the third-quarter, Netflix topped 30 million domestic streaming subscribers, with 31.1 million, of which 29.9 million were paying subscribers. This helped Netflix earn 52 cents per share on $1.106 billion in revenue, as streaming margins continued to improve, jumping 120 basis points to 23.7%. Analysts will be looking whether to see Netflix can continue that trend.

For the fourth-quarter, Netflix said it expects to add 2.01 million members, on its way to having anywhere between 32.7 million and 33.5 million domestic streaming subscribers at the end of the quarter. The company expects to generate between 47 cents and 73 cents a share in earnings, with revenue expected to be between $941 million and $965 million. It also expects streaming margins to be 23.2%, just slightly below the third quarter.

Wedbush Securities analyst Michael Pachter, who rates shares "underperform" with a $160 price target, notes Netflix may wind up adding more subscribers than Wall Street thinks, but it'll come at a cost. "We expect EPS below consensus, reflecting steady ad spending throughout Q4 to drive subs," Pachater wrote in a note. "Our bias is there may be upside to our Q4 domestic streaming net adds estimate of 2.00 million, which is at the midpoint of guidance of 1.61 - 2.41 million." Pachter expects Netflix to earn 60 cents per share on $1.16 billion in revenue.

Analysts surveyed by Thomson Reuters are expecting Netflix to earn 66 cents per share on $1.17 billion in revenue for the fourth quarter.

Netflix's move into original programming, such as House of Cards, Orange is the New Black, and Lilyhammer, appear to be paying off, with the recent stronger-than-expected bumps in streaming subscribers, notes Cantor Fitzgerald analyst Youssef Squali. "Originals strategy seems to be working. More originals were launched in December (Turbo: F.A.S.T. and Lilyhammer 2), on the back of Orange is the New Black (7/11/13) and Derek (9/12/13.) Netflix also got its first Oscar nomination for the documentary film Square," Squali wrote in his note. He rates shares "hold" with a $350 price target.

Not everyone, however, is so sure that Netflix is likely to continue seeing the bump in subscribers from its push towards original content. Wedbush's Pachter noted he does not expect the second season of House of Cards to be the subscriber booster the first season was, especially as Netflix becomes a more mature company. "The risk of domestic saturation is growing over time, as Netflix ended Q3 with over 31 million domestic streaming subs, above roughly 30 million for HBO (according to Netflix management)," Pachter wrote in note.

Interestingly enough, a recent study from NPD Group notes people are subscribing more to services such as Netflix and Hulu, dropping HBO and Showtime in the process. HBO is owned by Time Warner (TWX - Get Report), while Showtime is owned by CBS (CBS).

Conversely, BTIG analyst Rich Greenfield, who is co-hosting the Netflix earnings call tonight, notes this is not the case. In a survey, Greenfield noted that subscribers are not dropping HBO in favor of Netflix. In fact, people are subscribing to both Netflix and HBO, not choosing one or the other.

Pacific Crest analyst Andy Hargreaves also notes the potential for slowing domestic subscribers is a real threat for Netflix, especially given the stock's lofty valuations, as 2014 comes into focus. "While Street estimates appear to anticipate a slower pace of domestic subscriber growth and margin expansion in 2014, we believe slower margin expansion would negatively impact more bullish arguments that call for accelerating margin expansion," Hargreaves wrote in his note. "Consequently, we see the potential for a decline in Q1 domestic streaming net adds as a risk to NFLX at current levels."

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