Netflix Q2 Earnings: Shares Up as Wall Street Focuses on Subscriber Growth


Large cap Netflix, Inc (NASDAQ: NFLX) reported Q2 2017 earnings after the Monday market close with Wall Street, as usual, rewarding (or punishing) the stock based on quarterly subscriber movement rather than its actual earnings. This time around, analysts’ estimated there would be 3.2 million new subscribers; but Netflix easily beat those estimates with the shareholder letter noting:

In Q2, we underestimated the popularity of our strong slate of content which led to higher-than-expected acquisition across all major territories. As a result, global net adds totaled a Q2-record 5.2 million (vs. forecast of 3.2m) and increased 5% sequentially, bucking historical seasonal patterns. For the first six months of 2017, net adds are up 21% year-on-year to 10.2m


Domestic net additions of 1.1m represented the highest level of Q2 net adds since the second quarter of 2011. For Q317, we project that we will add 0.75m US members, compared with 0.37m in Q316, which was impacted by un-grandfathering.

Q2 revenue was $2.785 billion versus $2.105 billion a year ago while net income was $65.600 million versus $40.755 million.

The shareholder letter also noted:

We are making good progress with our international expansion as improving profitability in our earlier international markets helps fund significant investment in our newer territories. As a result, we expect positive international contribution profit for the full year 2017, at current F/X exchange rates. This would mark the first ever annual contribution profit from our international segment.


And:

Q217 free cash amounted to -$608 million vs. -$254 million in the year ago quarter and -$423 million in Q117. We anticipate free cash flow of -$2.0 to -$2.5 billion for the full year 2017. With our content strategy paying off in strong member, revenue and profit growth, we think its wise to continue to invest. In continued success, we will deploy increased capital in content, particularly in owned originals, and, as we have said before, we expect to be FCF negative for many years.

The international expansion has meant significant investments in new content – spending more than $6 billion on original content this year alone, up by $1 billion from last year. This spending has helped the Company to gain new subscribers.


A technical chart for Netflix shows sharesin a strong uptrend from October until last month when they dipped a bit only to go back up again:

A long term performance chart shows shares of Netflix close to all time highsgoing into earnings while potential performance peer or competitor Amazon.com, Inc (NASDAQ: AMZN) has continueda more steadyrise and small cap Outerwall Inc (NASDAQ: OUTR), which owned the Redbox business,got swallowed up Apollo Global Management, LLC (NYSE: APO) late last year:


Finally, here is a quick recap of large cap Netflixs recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page going into the current earnings report:

Earnings History6/29/20169/29/201612/30/20163/30/2017
EPS Est. 0.02 0.06 0.13 0.37
EPS Actual 0.09 0.12 0.15 0.4
Difference 0.07 0.06 0.02 0.03
Surprise % 350.00% 100.00% 15.40% 8.10%
EPS TrendCurrent Qtr. (Jun 2017)Next Qtr. (Sep 2017)Current Year (2017)Next Year (2018)
Current Estimate 0.16 0.23 1.05 1.95
7 Days Ago 0.16 0.23 1.05 1.94
30 Days Ago 0.15 0.23 1.04 1.92
60 Days Ago 0.15 0.22 1.04 1.91
90 Days Ago 0.24 0.23 1.11 1.98

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