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

Are Netflix Earnings a 'House of Cards'?

Stocks in this article: NFLXCMCSATVZ

Updated from 11:29 a.m. to include thoughts from Piper Jaffray analyst and remarks TV Everywhere in the twelfth paragraph.

NEW YORK (TheStreet) -- Netflix (NFLX) reports first-quarter earnings after the close of trading on Monday, and with the recent trouncing in the stock investors will be looking to see whether CEO Reed Hastings top-ticked his own company or if there is more fuel to this fire.

Shares of Netflix have dropped sharply since the start of 2014, as high-momentum tech stocks have taken the brunt of selling. Netflix has dropped 6.1% year to date compared with a 1.94% decline in the Nasdaq. In Netflix's third-quarter earnings letter, Hastings warned of "euphoria" in the stock.

"In calendar year 2003, we were the highest performing stock on Nasdaq," Hastings wrote in the letter. "We had solid results compounded by momentum-investor-fueled euphoria. Some of the euphoria today feels like 2003."

Since that time, the stock hit a high of $458 on March 6, only to come crashing down along with nearly every other high-growth, high-momentum technology stock. It appears though that the underlying business for Netflix is as strong as it's ever been, with the company surpassing 33 million domestic streaming subscribers in the fourth quarter.

In the fourth-quarter letter to shareholders, Hastings said he expects Los Gatos, Calif.-based Netflix to have net additions of 2.25 million subscribers, which would bring the total to around 36 million streaming subscribers.

"Running equal to, or slightly above, prior year net additions is a great outcome because it implies that at 33 million domestic members we're still in the middle section of the S curve of consumer adoption, with years of member growth ahead of us," Hastings penned in the letter.

Analysts surveyed by Thomson Reuters are expecting the company to earn 83 cents a share on $1.266 billion in revenue for the first quarter.

The biggest issue during the quarter, aside from the company's continued momentum in streaming and its international business, is the company's relationships with broadband providers, most notably Comcast (CMCSA), AT&T (T), Verizon (VZ) and others. In late February, Netflix and Comcast announced a deal that gives Netflix direct access to Comcast's broadband network. At the time (not that February is all that long ago), this was seen as a landmark deal between a content company and a broadband provider, with the deal potentially changing the way content is delivered to homes in the future.

It's unclear what kind of change the deal will have to Netflix's cash position, given terms of the deal weren't disclosed. But Wall Street did not seem overly concerned, at least in the long run.

"The Netflix-Comcast paid-peering deal, while likely creating headwinds to margin leverage near-term, removes a major structural concern. No terms were disclosed, but we believe that this agreement is likely to precipitate others in the U.S. and internationally," Cantor Fitzgerald analyst Youssef Squali wrote in a note following the February announcement.

BTIG analyst Rich Greenfield, who moderated the Netflix earnings call along with JPMorgan analyst Doug Anmuth, believed that the deal between Netflix and Comcast would help Netflix in the future, getting the company's service on Comcast's X1 set-top boxes.

"We believe Netflix agreeing to a paid peering relationship with Comcast was tied to Netflix being integrated into Comcast's X1 set-top boxes later this year," Greenfield wrote in a blog post. "Time will tell if we are right, but we simply do not believe this is as simple as Comcast won and Netflix lost."

In the latest NPD Connected Intelligence Connected TV User Experience Report, 75% of those with connected TVs want video apps, so it's a good possibility a deal with Comcast could lead to Netflix being included in the future. "The importance of having core video aggregation apps such as Netflix and YouTube, has a lot to do with the convenience that allows consumers to easily access a multitude of programming options in one place," said John Buffone, executive director, Connected Intelligence, via an emailed statement.  "The next wave of TV app user, however, is looking for a different experience than earlier adopters and is placing greater emphasis on TV Everywhere apps from their favorite networks."

Anmuth agreed, noting that by giving Netflix users more direct access it's a "positive for the Netflix user experience," not to mention Netflix "likely anticipated some degree of higher costs related to network agreements in its 2014 guidance."

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
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!
DOW 16,677.90 +216.58 1.32%
S&P 500 1,950.82 +23.71 1.23%
NASDAQ 4,452.7920 +69.9450 1.60%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

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