3 Key Things to Watch as Netflix Reports Earnings on Monday

Though Netflix's (NFLX) shares weren't unscathed by the recent tech selloff, the streaming giant's stock remains up a whopping 47% relative to where they traded before a blowout Q4 report was posted on January 22. And the $135 billion market cap Netflix now sports is easily higher than that of every media giant save for Disney (DIS) .

Those gains, and the steep multiples they've yielded, spell a high bar as Reed Hastings' company delivers its Q1 report after Monday's close. On average, analysts polled by FactSet expect Q1 revenue of $3.69 billion (up 40% annually) and GAAP EPS of $0.63.

However, Netflix's shares primarily tend to move post-earnings in response to the company's subscriber growth figures and guidance rather than its revenue and EPS. In January, the company guided for 1.45 million U.S. and 4.9 million international Q1 streaming net adds. And currently, the Q2 analyst consensus is for 974,000 U.S. and 4.27 million international net adds.

Here are three things to pay close attention during Netflix reports and hosts a subsequent earnings interview:

International Subscriber Trends - Particularly in Asia

With about 45% of U.S. households now signed up for Netflix, and some percentage of the others able to access Netflix by "borrowing" login credentials from subscribed family and friends, international markets are bound to drive the lion's share of subscriber growth in the coming years. Any sign of a letup for the torrid international growth Netflix has delivered in recent quarters won't be well-received.

In addition to the company's total international subscriber adds, any commentary about Netflix's performance in Asian markets such as Japan, South Korea and India bears monitoring. Relative to Western Europe and Latin America, Netflix's Asian push remains in its early stages -- the company only entered many big Asian markets in 2016, and is still in the process of fleshing out its local content libraries and marketing efforts. Action Alerts PLUS holding Amazon.com's (AMZN) Prime Video is also now present in many of these markets.

Content Spending and Cash-Flow Commentary

Netflix has already hiked its 2018 content budget twice: It now stands at $7.5 billion to $8 billion on a profit-and-loss basis, with cash outlays expected to be markedly higher. Disney's plans to pull its films from Netflix at the end of 2019 and put them on a Disney-branded streaming service that will also feature a variety of other content might have something to do with Netflix's moves.

Keep an eye out to see if the content budget gets hiked again. Any earnings interview commentary about changes in spending priorities -- for example, greater investments in kids-friendly content or original IP in order to counter Disney's moves -- is also worth monitoring. As is any commentary about acquisition plans: French media recently reported Netflix is in talks to buy Luc Besson's EuropaCorp studio, which could help it produce the kind of action films that would soften the loss of Disney's material a little bit.

Meanwhile, a fresh content budget hike could also lead Netflix to adjust its 2018 free cash flow (FCF) guidance. In its Q4 report, the company forecast it would burn through $3 billion to $4 billion in cash this year, and tap debt markets to help finance this spending. In addition to its content-buying spree, Netflix's aggressive marketing spend (it's expected to rise 80% this year to $2 billion) is contributing to its cash burn.

ARPU Trends

In January, Netflix reported its average revenue per user (ARPU) grew 5% in the U.S. and 12% in constant currency elsewhere. Look for additional ARPU growth in Q1 -- particularly since it will be the first full quarter of benefiting from the price hikes Netflix carried out last fall in the U.S. and certain foreign markets.

In addition to price hikes, ARPU has benefited from a mix shift towards HD and 4K subscription plans relative to basic (non-HD) plans. On the other hand, the flurry of bundling deals Netflix has inked with carriers and pay-TV providers could (though boosting subscriber growth) pressure ARPU a bit, assuming that Netflix is providing a discount for bundled subscriptions. The company's list of bundling partners includes T-Mobile US (TMUS) , European pay-TV giant Sky, Cablevision parent Altice and (thanks to a just-announced deal) Action Alerts PLUS holding Comcast (CMCSA) .

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