The TV and movie streaming company has just gone global, excluding China, and is increasingly commissioning and producing its own series. That’s driven up revenue, but it has also proved costly, and adjusted earnings per share are expected to fall to $0.084, from $0.151 in the previous quarter. Revenue is expected to increase 7.7% from the previous quarter to $1.964 billion.
Netflix’s stock price suffered a nasty fall after peaking at $129.29 in early December, as slowing US subscriber growth began to weigh on its lofty valuation. The company also announced a $2 increase to its monthly package last October that is set to come into force in May, which has heightened concerns that its new subscriber growth in the second quarter will be sharply impacted.
Netflix guidance for new subscribers in the first quarter is 1.75 million in the US, but this is expected to fall to between 500,000 and 700,000 in the second quarter with a number of analysts highlighting downside risks to even these low estimates.
The main concern is that Netflix has very high fixed future content obligations of more than $11 billion, which can only be met if average revenue per user (ARPU) and/or subscriber numbers continue to increase.
The bulls with high twelve-month price targets on the stock argue that slowing US subscriber growth can be made up through Netflix’s international expansion. Ex-US growth will be a key focus in the earnings release, but the concern is that the company runs into greater costs expanding into other markets and in some cases its subscription fees are comparatively high in other countries.