After soaring more than 180% this year, will Netflix (Nasdaq: NFLX) stock get a boost from today's earnings, or is this growth tear ending?
We'll find out Monday after the close when the video-streaming giant posts second-quarter results.
Upside numbers are expected from Netflix, which just made Emmy history with its blockbuster series "House of Cards" and "Arrested Development." Netflix garnered 14 nominations including Best Drama for Cards.
Year-to-date, shares have nearly tripled, rallying more than 180%. That puts NFLX as the top performer in the S&P 500 Index.
But as investors have experienced in the past, Netflix stock can reverse course in dramatic fashion...
Remember 2011, when the company said it was splitting in two and raising prices of its DVD-by-mail and online movies packages by 60%? Outraged customers fled and Netflix stock plunged 78% in five and a half months.
Luckily for NFLX stock investors, this quarter is looking much different as customers have flocked to the service.
Analysts expect earnings per share to rise to $0.40 from $0.11 a year ago. Revenue is projected to have swelled 20% to $1.07 billion, propelled by strong subscriber growth thanks to the Netflix original series "House of Cards" and the cancelled Fox series "Arrested Development."
Over the past 12 months, the stock has soared some 227.81%. Friday, shares closed at $264.58, just 15% off its all-time high of $299.
What to Watch in Netflix Earnings
A key number to watch in the Q2 Netflix earnings release will be how many U.S. subscribers the company added over the April through June quarter.
Netflix forecast it would grow subscriber base by some 888,000 in the U.S. over the three months, well above the 530,000 customers added in the same quarter a year ago.
In the January to March period, Netflix attracted 2 million more subscribers, thanks to "House of Cards." Continued interest in the series, as well as the launch of "Arrested Development" in May, is expected to contribute to robust gains in subscriber count.
This number will also be closely watched:
the price the company pays for content, cash flow and increasing competition from Amazon.com (Nasdaq: AMZN), HBO and Showtime.
Additionally, CEO Reed Hastings will be watched (literally) when he discusses these issues and more during a live video discussion at 6 p.m. EDT, along with an analyst who covers NFLX and a CNBC anchor.
"The decision to have conference call moderators suggests confidence in [the quarter's] results,' Wedbush Equity Research analyst Michael Pachter wrote on a research note. Pachter is anticipating earnings to exceed expectations thanks to subscriber gains and cost controls.
Lazard Capital Markets analyst Barton Crockett agrees that Netflix's strength heading into the earnings call suggests a strong quarter and is justifiable due to "optimism about a subscriber, brand and business lift from a wide range of successful original TV shows."
Crediting a subscriber lift from the series, Crockett, who has a "Buy" on the stock, told MarketWatch. "We believe they have worked better than expected, pushing sub growth to solid levels versus guidance, [and have been] helpful for the stock."
The Bearish Outlook for NFLX Stock
But there are still many traders betting against Netflix stock, pushing it down nearly 2% in afternoon trading.
Short sellers are betting heavily against NFLX stock. Some 7.2 million shares have been sold short, a hefty 14.5% of the stock's total float. Options traders too are taking a bearish stance, with notable put activity in the August 210 and August 230 contracts.
If Netflix earnings do come in robust, look for a short squeeze rally that would cause a spike in volume and price as shorts race to cover their bets.
Among Wall Street analysts, 11 have "Buy" ratings, 17 have "Holds" and four rate NFLX stock as a "Sell." The consensus 12-month price target is $230, a solid 15% discount to NFLX'S Friday close.
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