After two disappointing quarters, some analysts are expecting Netflix to report bigger than expected subscriber numbers for the third quarter.
Netflix reports its operating and financial results after the close of trading Monday.
“Ahead of 2Q results, many believed Netflix was lowballing guidance and was poised to beat expectations. This quarter most assume the company will again report soft results,” said Michael Nathanson of MoffettNathanson Research in a report Friday. “However we believe the set-up for 3Q is exactly the opposite of last quarter.”
The street expects Netflix to be in line with company guidance with 309,000 added U.S. subscribers and 2.01 million added in international markets.
Mark Mahaney of RBC Capital Markets estimates that Netflix will report adding 300,000 new U.S. streaming subscribers, and 2 million new net international subs. Nathanson sees Netflix adding 460,000 domestic paid some and 2.1 million internationally, bringing the streaming leader’s total to 82.5 million, just above the company’s guidance.
For fourth quarter, we believe the Street’s outlook for close to 1.27 million domestic sub adds and 3.32 million international sub adds is somewhat aggressive, though ballpark possible,” Mahaney says.
Wall Street is expecting Netflix to report $2.28 billion in revenue and earnings of 4 cents a share.
Mahaney sees Netflix doing a bit better than that, with $2.29 billion in revenue and 5 cents in earnings per share. Nathanson also sees Netflix revenue hitting $2.29 billion, but he sees earning a penny higher at 6 cents.
Mahaney sees Netflix’s business becoming more profitable in the U.S., with margins rising to 35.2%. Netflix’s international business is in the red however, with Mahaney expecting losses to rise to $95 million from $69 million in the second quarter. The losses are the result of launch costs in countries including Poland and Turkey.
Mahaney has Netflix rated Outperform. “WE believe that Netflix has achieved a level of sustainable scale, growth and profitability that isn’t currently reflected in its stock price,” he said in a recent note.
“We also view Netflix as one of the best derivatives off the strong growth in online video viewing and in internet-connected devices, with our proprietary survey data tracking significantly improved customer satisfaction levels.
Nathason is neutral on Netflix, because of the uncertainty around the company’s big international push. “Unlike some of our peers, we have bene hesitant to require Netflix’s international operations with the same valuation as their domestic business,” he said.