Stock Market News – Netflix reports quarterly results after closing bell with earnings season in full swing

Carol, XM Investment Research Desk

Entertainment company Netflix will release its earnings report for the first quarter of 2018 after Monday’s US market close. The consensus recommendation for the company is “buy”, in line with the average consensus recommendation for the Online Services peer group.   

The provider of media streaming services is anticipated to have made $0.64 in earnings per share (EPS) during Q1 according to analysts submitting their forecasts to Thomson Reuters’ estimate system (the Institutional Brokers’ Estimate System – I/B/E/S) – an estimate that has remained unchanged over the last four weeks. Should actual data confirm this figure, it would represent an increase by 60% relative to the corresponding quarter from last year when the firm earned $0.40 per share. Wall Street analysts’ EPS projections currently range from $0.55 to $0.98. Netflix’s earnings came in as expected in two of the four preceding quarters, while exceeding analysts’ forecasts once and missing them once as well.

An earnings beat could see buying interest for Netflix’s stock price, with the recently congested area around the $320 handle potentially acting as a barrier to price advances. An upside break would increasingly bring into view the stock’s record high of $333.98 which was recorded on March 12. On the downside and in case of disappointing quarterly results that spur selling orders on the stock, support could come around the $300 mark that may be of psychological significance. Notice that the current level of the 50-day moving average lies not far below at $293.25. It is customarily the case that the greater the discrepancy between actual figures and those projected, the more profound the market reaction.

In terms of short-term momentum for Netflix’s stock, that seems to be positive at the moment with the RSI being on the rise and the share price posting a three-week high of $317.49 on Friday, a day during which a Deutsche Bank analyst upgraded the stock to “buy” and raised the corporation’s price target to $350 (this compares with a median and mean target price of $312.50 and $299.07 respectively) from $240; the share price later retreated a bit but still finished the week with an impressive 9.0% gain.

Beyond the company’s bottom line, a number that will be scrutinized by investors is the one on subscriber growth as well as the outlook for subscriber additions. Netflix’s guidance for Q1 makes reference to the addition of 6.35 million subscribers from both US and international markets, with Wall Street analysts projecting 6.5m. In Q4 2017, the California-based company comfortably beat expectations on this front, increasing investors’ bullish bets on its stock.

A theme that might act to the detriment of Netflix moving forward is increased regulation within the tech space, especially after the latest controversy involving Facebook and Cambridge Analytica. From a firm-specific perspective, threats exist from rival services, perhaps more formidably from Amazon’s Prime Video service. In this respect, the company’s margin outlook will also be closely watched as it releases its results later on Monday, while it is worthy of mention that some analysts share the view that Netflix has capitalized on first-mover advantages, rendering it difficult for traditional media companies or other big tech firms to compete with it.

Another area of interest is increased talk of “bubbly valuations” within the tech sector. Should this story pick up steam, then Netflix could definitely “fall victim” to panic selling. The corporation’s forward P/E ratio (price over forecasted earnings) exceeds 90, a number much higher than the 12.99 of its peer group and also of the S&P 500. Netflix’s P/E might be a testament of its growth potential or signal an overpriced stock (or a combination of the two).

Netflix is an S&P 500 and Nasdaq 100 component stock. Year-to-date and prior to Monday’s US market open, Netflix has risen by an impressive 62.35%, with the equivalent performance by the two benchmarks standing at -0.65% and 3.65% respectively (i.e. the S&P is trading lower year-to-date).

Some of the big names releasing quarterly results on Tuesday are Goldman Sachs and Johnson & Johnson, with both companies’ reports being made public before tomorrow’s opening bell on Wall Street. The rest of the week will also be busy, featuring among others the earnings release of Morgan Stanley, Goldman Sachs’ investment banking rival.

Lastly, it should be kept in mind that the overall stock market sentiment could also be affected by geopolitics – perhaps most notably the conflict in Syria – as well as developments on global trade.