Stock of the day 19/01/2015 – Netflix Inc

With wins for Amazon-created show Transparent and a Best Actor in a Drama Series victory for Kevin Spacey in the Netflix original House of Cards at this year’s Golden Globes, the credibility of self-created streaming content is ever-growing.

However, with Netflix facing stiff competition from its streaming rivals and a disappointing reaction to its third quarter figures, the company will be hoping for a better reaction to its Q4 2014 earnings release on Tuesday.

2014 was a turbulent year for Netflix as the company failed to match the high expectations it had set for investors the previous year. After 2013 saw rapid growth Netflix opened 2014 at $366.71; it then saw a mixed first half to the year, until the company settled into a steady rise in May. This culminated in Netflix’s all-time high shares price of $488.99 in September. However, come October and the company’s third quarter results, share prices fell by 26% and have failed to recover since, opening 2015 at $342.35, a far cry from its autumn position.



The precipitous fall in mid-October was not down to any great disappointments in revenue but rather missed targets in subscriber growth. After launching in France, Germany, Belgium Austria, Switzerland and Luxembourg last September, there were high expectations for subscriber gains. However, the company fell 400,000 short of the 37.6 million US subscribers forecast for the third quarter, whilst internationally Netflix saw 15.86 million instead of the predicted 16.16 million. This meant that, regardless of reaching its $1.41 billion revenue and $0.96 EPS targets, investors were bitterly disappointed with what they heard.

Netflix’s competition has only grown since the company began, with Yahoo, Hulu and Amazon not only streaming shows but creating their own, whilst HBO is soon to launch its much-clamoured for stand-alone streaming service for HBO content, which Netflix has already admitted will be its biggest rival. HBO and Amazon are especially worrying for the company, as the former has one of the most respected lauded collections of television at its disposal, whilst the latter’s streaming service is part of a bundle that also include the very popular Amazon Prime one-day delivery service. Due to these factors, and Netflix’s attempts at international expansion, analysts don’t see a return to profitability until Q3 this year. For the Q4 release specifically, analysts have forecast average earnings per share of $0.45, with a predicted 26.3% year-on-year rise in revenue to $1.48 billion.

However, perhaps more importantly for Netflix is the forecast subscriber growth. The company itself expects 1.875 million net additions in the US, compared to analyst expectations of a -23.1% year-on-year decrease to 1,791,000 net additions. There is better news abroad, as analysts are predicting growth of 2.131 million international net additions, a 22.3% year-on-year growth and similar to Netflix’s own figure of 2.15 million. Like for the company’s Q3 results, the focus will be on these subscription figures, and Netflix will be looking for a Christmas boost to help distance it from its streaming-rivals.