NFLX is reporting their Q3 Earnings today, 10/15/2014, after the market close. Consensus estimates indicate that NFLX will earn $0.93 a share, a 79% increase (Year over Year). On the revenue side, analysts expect sales to rise to $1.41 billion, a 27% increase (Year over Year).

 

Focus Points


One of the key metrics that analysts will be watching closely is subscriber growth. Subscriber growth provides insight into the company’s growth prospects. The company reported that Q2 2014 ended with 50 million video-streaming subscribers, and management forecasted that number will increase by 3.69 million, a 7% increase.

 

International expansion is another company priority. Last quarter, management indicated that NFLX was stepping up its international efforts and forecasted a 2.36 million increase in international streaming subscribers, a 17% increase. Since international growth is becoming a more important driver of future growth, it will be interesting to see if those estimates are met and/or surpassed.

 

In Q2, NFLX missed its consensus earnings estimate, albeit by 1%, which was the first earnings disappointment since Q3 2010. This quarter should indicate whether that was a one-off quarter or if it was the beginning of a lower growth phase. If growth materially slows, the stock price may no longer warrant such a valuation.

 

Technical Picture

 

NFLX’s correction so far has been mild relative to other growth stocks at this point and is holding up quite well despite the poor general market action. Today’s earnings, and subsequent price reaction, will provide clarity as to whether the stock will continue its upward trend or if general sentiment is shifting away from high growth names.

 

Best Returns,

The MarketSmith Team