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Netflix’s (NFLX) Q3 Earnings to Benefit From Content Strength


Netflix Inc. NFLX is set to report third-quarter 2018 results on Oct 16.

Notably, the company’s earnings have beaten the Zacks Consensus Estimate in two of the trailing four quarters, delivering an average negative surprise of 0.39%.

In the last reported quarter, the company’s earnings of 85 cents per share surpassed the Zacks Consensus Estimate by a nickel. The figure was much better than 15 cents reported in the year-ago quarter.

Revenues of $3.91 billion lagged the consensus mark of $3.94 billion. However, the top line surged 40.1% year over year, driven by solid streaming revenues that jumped 42.8% from the year-ago quarter.

For the third quarter of 2018, Netflix forecasts earnings of 68 cents per share. Management expects to add 0.65 million subscribers in the domestic streaming segment and 4.35 million subscribers in the international segment for the current quarter.

Let’s see how things are shaping up for this announcement.

Netflix, Inc. Price and EPS Surprise

Netflix, Inc. Price and EPS Surprise | Netflix, Inc. Quote

Factors to Consider

Netflix’s subscriber addition pace has hit a rough patch due to increasing competition from YouTube and HBO. Amazon AMZN is also investing heavily in original content. For fiscal 2018, the company is expected to spend $4.5 billion in this regard.

YouTube, which remains a dominant player in the streaming space, is pushing aggressively into original content to double its user base and adoption rate. Moreover, the entry of players like Apple AAPL and Disney will further intensify competition.

Nevertheless, Netflix’s focus on providing quality content, expanding original movie slate, strong regional content portfolio and aggressive spending on content acquiring is expected to help it steer away competition.

The company’s focus on streaming quality content, including original productions, has been a major growth driver in recent years. This year at Emmys, Netflix tied with HBO and won 23 trophies in different categories.

Netflix’s shows have been rapidly gaining popularity as the company received 112 nominations in 2018, significantly up from 91 in 2017 and 54 in 2016.

However, due to high costs accompanying its rapid international expansion and production of original content, the company’s bottom line remains under threat.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

Netflix has a Zacks Rank #3 and an Earnings ESP of +0.74%, which indicates a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

A Stock to Consider

Here is a stock you may consider, as our proven model shows that it has the right combination of elements to post an earnings beat this quarter.

Shaw Communications SJR has an Earnings ESP of +4.43% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. The company is expected to report on Oct 25.

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