The 3 Things to Look for in Netflix Earnings

Tickers in this article: NFLX

Updated from July 18th to include comments from BTIG analyst Richard Greenfield. 

NEW YORK (TheStreet) -- Since we last checked in on Netflix  financials, the online streaming company has been fortunate enough to welcome a lot of good news.

TheStreet's Keris Lahiff previews Netflix's results:


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On the content production side, the Los Gatos, Calif.-based company has gone up against heavy-hitter HBO and proven itself equal to the premium cable channel in terms of quality of output. Any doubts as to whether its original series Orange is the New Black would be a one-hit wonder were put to rest when the second season premiered in June (all at once, binge-style) to positive critical reviews and fan reception.

Netflix's conviction in its original programming strategy was affirmed in early July when Emmy nominations for the 66th Primetime Emmy Awards were announced. Orange received 12, the most for any comedy, three for political drama House of Cards, already winner to three previous Emmys, and one for Ricky Gervais' Derek.

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Netflix is shopping its expansive library to new international markets as it commits to becoming a global force in online video. The company announced in May plans to significantly expand in Europe by the end of the year, notably in Germany, Austria, Switzerland, France, Belgium and Luxembourg.

In the same month, Netflix notified domestic users of a price hike for new members to $8.99 from $7.99, with existing members being grandfathered into the new pricing scheme over two years. While possibly only an incremental increase to revenue over the second quarter (based on the uptick in new subscribers), the extra cash generated from the raise has been bookmarked for investing in more content, which in turn will incent new subscribers into the fold.

The Fundamentals

This has encouraged high expectations among analysts when the Internet TV network reports second-quarter earnings after the bell Monday, July 21. "While investor expectations have increased recently, we believe they remain achievable," wrote Pacific Crest Securities analyst Andy Hargreaves in a note.

Analysts polled by Thomson Reuters anticipate earnings to have more than doubled to $1.15 a share from 49 cents a year earlier, even as the company invests more in production and international expansion.

Revenue is expected to grow nearly 25% to $1.33 billion from just over $1 billion in the year-ago quarter. Analysts also expect sales to climb 5% sequentially, despite the company warning that its second quarter is typically seasonally weak, a byproduct of summer months in the U.S., its largest revenue-generating market.

The May price hike should give a slight bump to top- and bottom-line growth, though it remains to be seen whether the increase deterred new customers from signing up past the one-month free trial period.