Full 360-Degree Netflix Earnings Preview (NFLX, AAPL, AMZN, GOOG, CSTR)

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Netflix, Inc. (NASDAQ: NFLX) is set to report earnings after the close and Wall Street has to be wondering if the bar has been set low enough to clear.  While shares have bounced 50% from their yearly lows, this is still down almost 70% from its year high and now the company may have to start selling an EBITDA growth story rather than an earnings growth story.  We are taking a look here at the endless rumors, as well as what the past figures were with guidance, what the chart and options pricing indicate, and more.

The endless rumors are currently just not feasibly real buyers.  There are too many investors who are buried in ‘long and wrong’ investments here at share prices of $200, $250, and even $300… Through time that will change.  Apple Inc. (NASDAQ: AAPL) would be a natural fit here, as would Amazon.com, Inc. (NASDAQ: AMZN) in second place.  Google Inc. (NASDAQ: GOOG) could totally transform its YouTube efforts with a Netflix buyout, but the thought of Google managing so many retail accounts might not be what Larry and Sergey want for a model.

We have not measured these side by side in some time, but CoinStar, Inc. (NASDAQ: CSTR) now is a true physical competitor with its drop-box Redbox video rental service kiosks.

Thomson Reuters has estimates for Netflix of $0.55 EPS and $857.9 million in revenues.  What is interesting is that the range (due to very wide guidance) is extremely wide.  With a consensus estimate of $4.07 EPS for 2011 the 23-times earnings multiple sounds ok.

Long-term trouble is coming to Netflix if things go according to current expectations. The 2012 consensus earnings estimate is -$0.02 EPS from Thomson Reuters.  The range of -$0.75 EPS to $0.96 EPS is so wide that it feels like bobbing for apples.  Going from a great earnings and revenue growth into a story selling the EBITDA story is going to be a very tough road to travel.

The third quarter’s numbers showed 21.5 million streaming customers, but the total was put at 24.8 million unique domestic subscribers.  With such a pricing change, the big question should be how much Netflix can hold on to rather than how much they will grow this quarter. Then it boils down to what they can hold on to in 2012 and how much growth they can milk through time.  Content costs are going to rise, and the video rental giant is losing some content as well.

The chart for Netflix is a precarious one.  Now shares are well above the 50-day moving average of $78.39.  Still, this 200-day moving average of $177.76 shows just how bad things have been. The yearly high being north of $304.00 makes it even more representative.

It should also be considered that there were more than 9.1 million shares short at the last short interest date, but that is not out of the ordinary any longer.  Netflix is truly a battleground stock.

Stock options trading could create another aspect of wild trading.  There are weekly options, but it is the monthly expiration options that many investors still use. The monthly February contracts are pricing in a move of up to about $10.00 in either direction.  A 10% move would not be out of the ordinary.

One last consideration is the analyst community.  We have a consensus (mean target) from Thomson Reuters of almost $82.00, indicating a loss is coming to investors at the current prices IF the analyst community is correct.

One thing seems rather certain in such a controversial battleground stock… Netflix is likely to be trading substantially higher or substantially lower on Thursday.  As a reminder, Netflix has the venue of dropping the news on its investor relations website (as though it needs the website page views).

If you did not notice, no real mention has been made of the Reed Hastings blunders.  Those speak for themselves based upon a 70% drop in the shares.  International operations remain a great opportunity, but the growth there may take years to come to fruition.

One last note… Some of these figures may change even as the day progresses.

JON C. OGG

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