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Netflix is expected to see earnings per share (EPS) of 13 cents for its Q4 earnings on 18 January (after-market), up 30% from the same period a year earlier, and 8% higher quarter-on-quarter. Revenue is expected to rise 35% to $2.47 billion, compared to a year ago.
As ever, subscriber growth remains crucial for Netflix, with a lot of focus on the sensitivity of customers to changes in prices. This, rather than an advertising model, has been the preferred strategy, and has involved spending more on content to expand the selection of original content in order to help boost growth in overseas markets that Netflix sees as crucial to its future. A major rival has emerged in the shape of Amazon, which has used its Fire TV and a big push into its own original content to provide an alternative to Netflix.
The shares endured a rough start to 2016, hitting $80 before beginning to rally. The $80 level held in July 2016 last year as well, and since then the shares have hit new all-time highs. The near-term risk is the price undergoes a correction post-earnings, perhaps moving back to $123 or even $114, but the long-term upward trend remains intact.
Traders should be aware of the volatility Netflix tends to see on results day. The average move is 13.4%, while current options pricing suggests a 10.9% move for today.