4 Factors Cantor Is Watching Heading Into Netflix Earnings

Netflix, Inc. NFLX is scheduled to report its Q4 2016 results on January 18. The company would like announce robust figures, reflecting “the impressive and ongoing ramp-up in original content, continued momentum in international markets, and attenuation in the negative impact from un-grandfathering,” Cantor Fitzgerald’s Youssef Squali said in a report.

Squali maintains an Overweight rating on Netflix, with a price target of $135. He expressed optimism regarding the company’s long-term outlook and growth opportunity. The estimates for revenue, EBITDA, NEPS and GAAP EPS are at $2,468.8 million, $177.8 million, $0.21 and $0.14, versus consensus expectations of $2,467.3 million, $185.8 million, $0.20 and $0.13, respectively.

4 Factors To Watch For

Squali mentioned four factors to watch for in the company’s earnings:

1. Solid subscriber additions: 3.734 million international net adds and 1.479 million domestic net adds.
2. Originals slate: This is likely to have “strengthened materially” in Q4, with ~46 titles debuting in the quarter, up from ~36 titles in the prior quarter and ~24 titles in Q2. “Impressively, this slate is only expected to pick up from here on with 1,000+ hours of original content in 2017 vs. 600+ hours in 2016,” the analyst stated.
3. Un-grandfathering to not remain an issue: Management cited un-grandfathering as the reason for lower reported net adds in Q2 2016 and below-consensus guidance for 3Q 2016. By the end of Q3, Netflix had un-grandfathered 75 percent of members. “Our tracking of "Netflix price increase" on Google Trends shows this trend normalizing,” Squali wrote.
4. U.S. and international sub growth: Netflix is expected to achieve single-digit U.S. subscriber growth going forward, while international growth would be substantial, with subscriber CAGR of ~20 percent through 2020 to ~90 million.