Netflix Earnings Preview: Accelerating Revenue Growth
Netflix [[NFLX]] is scheduled to report their fourth quarter 2009 results after the market closes on Wednesday, January 27th. Based on analysis from EarningsPreviews.com, Netflix is expected to report much stronger than expected quarterly results that exceed Wall Street’s consensus expectations.
We are forecasting revenues of $448.5 million and EPS of $.48. This would represent a 25% increase in revenues from last year’s $359.6 million in the same period. The current analyst consensus estimates calls for revenues of $445.6 million and EPS of $.45. On October 22, Netflix provided fourth quarter revenue guidance of $440 – $446 million and $.38 – $.47 GAAP EPS.
Netflix continues to offer one of the more compelling growth stories in the market today with revenue growth rates that are accelerating. Last quarter, Netflix revenue growth rate jumped to 24% and we are anticipating further acceleration in the fourth quarter driven by strong subscriber growth in December. Compete analytics show that traffic increased 26% in the fourth quarter.
As Netflix increases its video-on-demand streaming capabilities, we believe that subscriber acquisition costs will begin declining as customer churn is reduced. Declining subscriber costs coupled with an increasing marketing budget will position Netflix to continue to grow revenues by at least 20% over the next couple of years.
In 2009, Netflix stock gained a phenomenal 84% as they outperformed the Dow Jones industrial average’s 19% increase. However, the stock has fallen 10% since the beginning of 2010.
Netflix’s stock is now trading at 23x consensus 2010 EPS estimates. This is below the relative valuations of their peer group. The recent selloff has given investors has given investors an attractive entry point for this ultra-growth stock.
Recommendation: Buy with an $56 price target