Can Netflix Earnings Turn It Around in 2016?

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Netflix Inc. (NASDAQ: NFLX) is scheduled to report its fourth-quarter financial results after the markets close on Tuesday. The consensus estimates from Thomson Reuters call for $0.02 in earnings per share (EPS) on $1.83 billion in revenue. In the same period of the previous year, it posted EPS of $0.10 and $1.48 billion in revenue.

Netflix had a disappointing third quarter in terms of U.S. growth. It reported U.S. subscriber additions of just 880,000 for that quarter, well below its target of 1.15 million additions. The company has spent more money to produce and acquire quality original content in an effort to continue to attract U.S. subscribers in an increasingly competitive content landscape. Some even expect the company to spend upward of $6 billion in 2016 on content. For reference, analysts only expect the company to make $8.71 billion in 2016.

This has been one of the darling stocks in the tech space for the past five years. At the end of the past decade, the stock traded a little shy of $10 a share. In early December, the stock logged an all-time high near $133.

On the one hand, buying high is not generally recommended. On the other hand, there is no major threat to Netflix’s status as king of streaming, at least not currently. Amazon is the runner-up at 13% market share to Netflix’s 36%, but Netflix may be growing too quickly for Amazon to catch up.

Netflix has revamped its technology to make it more accessible from a bandwidth perspective, and it just pulled off a successful Japanese launch, something that critics suggested was going to be a big ask given the current state of the Japanese economy. With a focus on original content, sports programming and in-house movie production slated for the first half of next year, expect Netflix to spearhead the subscription-based online content space for the foreseeable future. It is an expensive stock, but not unjustifiably so.

Currently Netflix is available in practically every country in the world, with the notable exception of China.

A few analysts weighed in on Netflix prior to the earnings report:

  • SunTrust has a Hold rating with a $115 price target.
  • Wedbush reiterated an Underperform rating with a $40 price target.
  • RBC Capital reiterated an Outperform rating.
  • Credit Suisse reiterated a Hold rating.
  • Argus reiterated a Hold rating.

So far in 2016, Netflix is more or less in line with the broad markets; the stock is down 9% year to date. However, over the past 52 weeks the stock is up roughly 125%.

Shares of Netflix were trading up 3.7% to $107.90 on Tuesday, with a consensus analyst price target of $123.78 and a 52-week trading range of $47.71 to $133.27.