How Amazon Announcement Affects Netflix

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Streaming video provider Netflix Inc. (NASDAQ: NFLX) is on tap to report first-quarter results after markets close Monday. It’s no accident that Inc. (NASDAQ: AMZN) chose Monday to announce that it is decoupling its streaming video competitor to Netflix at a price of $8.99 a month, a dollar a month less than Netflix charges for its streaming service.

As for Netflix’s results, analysts are looking for earnings per share (EPS) of $0.03 on revenues of $1.97 billion. In the first quarter of 2015, Netflix reported EPS of $0.05 and $1.57 billion in revenue.

Amazon’s announcement won’t have any impact on its competitor’s results, but it may have a substantial impact on how analysts view estimates of Netflix’s future earnings and revenues. Right now, second-quarter estimates on Netflix call for EPS of $0.05 and revenues of $2.12 billion. For the full year, analysts expect $0.27 in EPS and $8.78 billion in revenue. Revenue estimates are nearly 30% higher than 2015 results for the same periods, but EPS estimates are essentially flat.

Netflix’s grandfathered streaming price of $7.99 a month rises to $9.99 in May. What’s odd about Amazon’s pricing for its video streaming service is that it is higher on an annual basis than the $99 price for Amazon Prime, which includes video streaming, free two-day shipping and a host of other offers.

Is Amazon using the streaming video offer to encourage more subscribers to Amazon Prime? The company is also offering a monthly subscription to Amazon Prime for $10.99, a premium of nearly $33, compared with the annual price for the service.

Amazon must think it can pick up either video-only subscribers or new Prime subscribers by offering the services at monthly pricing. But it’s hard to see how the numbers could be big enough to have a significant impact on Netflix subscriptions.

After dropping more than 25% in the first five weeks of 2016, Netflix shares have popped back to a decline of just 2.5% as of Friday’s close.

Netflix traded down about 3% shortly before noon on Monday, at $108.16 in a 52-week range of $78.89 to $133.27. The consensus price target on the stock is $123.66.