Netflix Earnings Preview: Second Quarter 2009

Netflix [[NFLX]] is scheduled to report their second quarter 2009 results after the market closes on Thursday, July 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 $408.5 million and EPS of $.52. This would represent a 21% increase in revenues from last year’s $337.6 million in the same period. The current analyst consensus estimates calls for revenues of $409.7 million and EPS of $0.50. On April 23, the company provided second quarter revenue guidance of $403 – $409 million and $.44 – $.53 GAAP EPS.


Netflix continues to turn in strong quarterly performances despite the tough economic conditions – exceeding Wall Street’s estimates the last four consecutive quarters. Despite the downturn in consumer spending, Netflix continues to grow at over 20% y/y. New subscribers are continuing to sign up for the monthly service that appears to offer a great value proposition. We also are expecting better margin performance as the weak advertising environment has allowed Netflix to reach new subscribers in a more cost-effective manner.


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 is already moving into additional related products such as live streaming of videos that could provide additional growth impetus for the future. Finally, there have been recent rumors that Netflix could be acquired by [[AMZN]]. While we do not expect any transaction in the near term, we do believe that Netflix could be an attractive takeover target for a major internet or media company.


Share Performance

Since the beginning of the year, Netflix’s shares are up an amazing 49%. In 2008, NFLX’s shares managed to gain 12% and greatly outperformed the 34% decline in the Dow Jones industrial average.



Shares are now trading at 21x consensus 2010 EPS estimates. This is below the relative valuations of their peer group. Recent speculation that the company could be a takeover target has caused Netflix’s shares to jump higher. While we expect the company to remain independent for the foreseeable future, we believe that NFLX’s shares could trade even higher as market valuations increase across the board.


Recommendation: Buy with a $50 price target.


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