Netflix, the video giant, has attracted a lot of attention as next week is approaching when it will announce earnings report. In 2019, technology is getting “risk –on” names because of the great run for stocks.
Investors are keenly observing the change in the Netflix shares, NFLX, -3.83%. In mid-2018, the company experienced a stock decline from $400 to $250 before Christmas. It resulted from earnings guidance given in July leading to negative results. A fourth-quarter earnings report issued in January indicates that there was an increase in returns from 15 percent to 37 percent representing SPX, +0.55%.
Questions are arising about what Netflix earnings report will demonstrate on April 16th. Will it be a stable Netflix or one that investors will assume January figures to be outliers that cannot affect long term challenges?
The following are the five crucial questions that Netflix should address before the earnings report.
1. How was the price increase received?
In January, Netflix announced an increase in price by $2 for its most popular plan every month. The $13 will remain in every billing cycle totaling to 18 percent increase. It will increase the profit margins for the U.S Company.
The company stated that the money would be used to pay its debts and the rest will be used to fund newly added original programming. It is unclear how million dollars for investors affect subscribers.
In 2014, Netflix was charging $7.99 for streaming every month. The video streaming company increased its prices leading to an increase in domestic subscribers from 45 million in 2015 to 58 million at the end of 2018. It resulted from the company’s loyal customers with more still willing to subscribe. It is an indication to the investors that the price increase would not be disastrous.
2. Is competition leading to growth?
In 2014, options for streaming were fewer unlike now when there are many businesses in the content industry such as Amazon.com AMZN, +0.24 percent and other smaller content providers like the HBO that is owned by AT&T T, -0.28 percent purchased in 2018 from Time Warner.
There is high anticipation in Walt Disney Co. DIS, +10.78 percent that has just joined the streaming market due to its high quality service experienced this year. There is an expectation of content rollout in Netflix since the duo’s partnership will be coming to an end. In next week’s earnings calls, analysts will be asking about how Netflix is preparing itself for the less future ahead of Disney.
Netflix can generate more cash to improve its content and other options it has. However, it needs to demonstrate confidence that it will continue connecting with its customers and continue to be the best streaming company.
3. What programming is in the works?
There are many anticipated shows and comedy such as “Wine Country” that are expected to release in May. However, investors want to see signs of documentaries and comedy shows other than just content.
Netflix has experienced the immense stock due to the success of originals like “House of Cards.” Recently, “Stranger Things” and “The Crown” released in 2016 have significantly connected with the audience.
There is an argument that Netflix’s future will be determined by serving niches instead of serving the masses. Such may include coming up with a project for families or lovers of nature without allowing content strategies to overlap a lot. It is difficult to keep track of all categories while expecting commitment from subscribers for a whole month while the investors are concerned about viewers to remain connected with the brand.
4.Will Wall Street share prices continue to increase?
Wall Street has been a great believer in Netflix stock. In 2019, Netflix has been very optimistic with its new price targets caused by January earnings making the company to raise the bar. A section of the shares in the bullish forecasts after January earnings show that Bernstein ranked the stock as “outperform” and had a target of $451. On the other hand, Raymond James went ahead to rank the shares as a “strong buy” which had a target of $470. RBC ranks the stock as “outperform” targeting $480. The current price of $370 per share represents 20% to 30%.
Rosenblatt put a target on the shares of $350 last week with a “hold” rating. He warned that Netflix’s shares had a perfect price.
5. When will the international market perform?
There are those who associate Netflix to its cash burns and unprofitability of its International business. It has led to the growth with an additional 8.8 million subscribers representing an increase in international customers from 7.3 million from the previous quarter.
Long term margins are better but not very significant at the international rate of 8.5% for the whole of the 2018 fiscal year. You will wonder if Netflix had acquired unprofitable customers at a cost if you consider growth in the last quarter.
Some investors consider this as a waste of time. However, leaders from Amazon and Uber are not worried about their value soaring due scale while others want to see an increase in profitability. They want to see Netflix grow to create an international stage of long term earnings.