Netflix Earnings Preview: First Quarter 2009

Netflix [[NFLX]] is scheduled to report first quarter 2009 results after the market closes on Thursday, April 23. Based on our analysis, we at are expecting NFLX to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $392.6 million and EPS of $.33. This would represent a 20% increase in revenues from last year’s $326.18 million in the same period. The current analyst consensus estimates calls for revenues of $390.18 million and $.31 EPS. On January 26, the company provided first quarter guidance of $387 – 393 million in revenues and GAAP EPS of $.25 – .33.


Netflix has continued to turn in strong quarterly performances despite the tough economic conditions – exceeding Wall Street’s estimates the last three consecutive quarters. Despite the downturn in consumer spending, new subscribers are continuing to sign up for the monthly service that appears to offer great value as an entertainment alternative. In February, the company announced that they had reached the impressive milestone of 10 million subscribers.


Going forward, the company appears to have multiple growth avenues still open to them. The company recently announced significant price increases for Blu-ray subscribers, and we feel there is probably room for additional price increases in the future. The company remains focused on adding additional subscribers, and the declining advertising environment should allow them to do so in a more cost effective manner. Finally, the company is already moving into additional related products such as live streaming of videos that could provide additional growth impetus for the future.


Share Performance

Netflix shares are up over 66% since the beginning of the year. In 2008, NFLX’s shares were one of the few stocks to post a positive gain – increasing over 12% to easily outperform the 34% drop in the Dow Jones index.



Shares are now trading at 26x consensus 2010 EPS estimates. This is slightly above the relative valuations of their peer group. While we are confident in both the short and long-term prospects for the company, we feel that the current valuation levels may limit the opportunities for future appreciation and would recommend investors wait for a pullback before buying additional shares.


Recommendation: Hold with a $35 price target.


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