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Full 360-Degree Netflix Earnings Preview (NFLX)

Netflix, Inc. (NASDAQ: NFLX) is set to report earnings after the close of trading today.  First and foremost, the former high-flying video rental subscription service has done even worse than falling from grace.  It was at one point down by nearly two-thirds from its peak.

Thomson Reuters has estimates of $0.95 EPS and $811.79 million in revenues.  The company already lowered total domestic subscribers to about 24 million but the company said that it expects churn will stabilize and then recover.

As far as the guidance for the fourth quarter, Thomson Reuters has the consensus targets of $1.09 EPS and $919.96 million in revenues.  The question is simple… How can anyone have a real handle on reality versus forecasting over what Reed Hastings will offer for guidance in the fourth quarter?

We won’t bother noting how much a blunder the company’s shift to splitting the digital from the mail-only base was along with the pricing change was.  It is too soon to expect that Netflix could get a big offset from overseas expansion.  Growth is now decelerating, even if the numbers are impressive if you do not consider the stock price.

Options are probably a bit skewed due to time value of the weekly expiration and due to the very long time value of the November options.  Using just the weekly options expirations generates an expected price move of $10 or more in either direction.  If we use the monthly expiration for November, that expected move is a move of up to $13 or a bit more in either direction.  If those are correct, Netflix could easily be up or down 10% or more tomorrow.

Another consideration has to be the short interest.  Netflix had over 8.1 million shares listed as being in the short interest as of the September 30 settlement date.  That could be higher or lower now, but the short interest is far lower now that its share price has imploded.

Using a chart for Netflix is no easy task.  Shares were above $300 briefly in July, then they went to almost $200 by August.  Then came the real mudslide and about all you can do now with shares around $116.00 is notice how shares have bounced after hitting the $105 area lows.  The stockcharts.com chart below shows how the long-term moving averages are so far away.  The 50-day moving average is $165.51 and the 200-day moving average is $220.22.

As far as the Wall Street analysts, the downgrades have been seen.  We cannot help but wonder if this one has overshot on the downside even after all of the analyst downgrades and even considering all of the negative strategic headwinds the company created for itself.  We are not expecting anything great based upon the company’s own guidance and based upon the lower and lower estimates.

If any analysts come out and are disappointed in the Netflix earnings report, then they don’t understand how to read a stock chart.

JON C. OGG