Netflix, Inc. (NFLX), the world's largest online movie rental service, with more than more than 10 million subscribers is scheduled to report on Thursday, October 22, 2009.
In the last five quarters, the company's actual earnings exceeded the market's consensus forecast significantly. Analysts' estimates for the quarter ending September 2009 (Q3) range from a low of $0.42 to a high of $0.50, with a consensus of $0.45.
For the fiscal quarter ending September 2009, the consensus EPS forecast has remained the same over the past week, the past month, and over the last three months.
In Q2, Netflix generated revenue of $408 million, up 21% from a year ago. Operating income was $53 million, up 54% from a year ago. Net income was $32 million, up 22% year over year and EPS was $0.54 up 29% year over year. Driving these results was a 26% year over year growth in subscribers offset by lower average revenue per user (ARPU) due to the growing popularity of the company's lower priced plans that include unlimited content delivered both by streaming and by DVD by mail.
In Q3, the company is expected to have benefited as consumers opt for in-home movie nights over expensive evenings on the town at a theater. Subscriber base should have also increased due to the new partnerships struck in the quarter. For instance, in the third quarter, the company signed an agreement with Disney-ABC Television Group that makes several of ABC's most popular TV series available to be streamed instantly from Netflix. So, this should have led to higher revenues.
Though Q3 revenues could come above Q2, I expect earnings to fall mainly due to lower ARPU. Moreover, Netflix's faces stiff competition from standalone DVD kiosks, which it says has yet to impact its business, and its online rental business is facing tough competition from companies like Amazon.com Inc. ( AMZN), Apple Inc. (AAPL) and Hulu - a joint venture from General Electric Co. ( GE) unit NBC Universal, Walt Disney Co. (DIS) and News Corp. (NWS).
On the finances side, the company looks secured. In September 2009, Netflix entered into a Credit Agreement with Wells Fargo Bank, National Association for a $100 million revolving line of credit, with a $10 million letter of credit sub facility, terminating September 16, 2012.
For the fiscal year ending December 2009, the consensus EPS forecast has remained the same over the past week, the past month, but increased from $0.39 to $0.43 over the last three months. The company boosted its full-year target, saying it expects earnings of $1.65 to $1.82 a share on revenue of $1.65 billion to $1.67 billion. Netflix also expects to end the year with 11.6 million to 12 million subscribers, up from its previous forecast of 11.2 million to 11.8 million.
The company's shares closed Tuesday at $46.49, compared to the 52 week range of $17.9 - $50.24. The stock seems to be trading slightly overvalued at the current levels.
