Netflix is about to release its 3Q earnings amid stock markets sell-off. What to expect?


Tomorrow the technological giant Netflix (NFLX) will have an opportunity to convince investors, that its long-term trend in the subscriber growth is still intact despite its weakening in the second quarter.

Last week stocks on the U.S. markets suffered one the worst sell-offs of this year when S&P 500 dropped by more than 5 % within two days. Investors will now focus especially on technological stocks with their allegedly high valuations. The streaming service Netflix is one of them. Netflix will release its third-quarter results on Tuesday, October 16, after the market closes. Analysts expect EPS for the last quarter of 0.68 USD per share in comparison with 0.29 USD in the same period last year. According to Credit Suisse, the company should match the expectations in regard to the subscriber growth in 3Q, but Netflix would need to reach at least 27.3 million net subscriber additions this year for the stock to see its record high again. While FactSet expects Netflix to report 26.3 million net subscriber additions in 2018, Credit Suisse analysts are more pessimistic with only 25.3 million. Investors will be, however, more interested in knowing whether the fundamental trends, which helped NFLX reach its record high of 432 USD in early July, are still strong and solid, and less in the current earnings and the short-term subscriber growth.

Source: TradingView

Netflix has about 60% market share of all U.S. internet households and about 15% share worldwide (excluding China), leaving room for further (subscriber) growth, wrote Piper Jaffray’s analyst Michael Olson. Nevertheless, Netflix will soon have to deal with new competitors. Last Thursday, AT&T (T) announced a launch of its own paid streaming service under the HBO brand and Walt Disney (DIS), Amazon (AMZN) and Snap (SNAP), which tries to enrich its social network with an original content, are now also moving in a similar direction. That’s also one of the reasons why analysts from UBS doesn’t expect a return of NFLX back to 400 USD area, who currently have a target price of 365 USD for the stock. David Miller from Imperial Capital’s offers a considerably more optimistic view. He pointed out that Netflix still has only 135.5 million subscribers internationally, whereas the number of global households with high-speed internet is already 2.9 billion. From this point of view, it seems that even new competitors on the streaming market shouldn’t stop Netflix from growing much further.