Netflix's Earnings Miss Has a Silver Lining

If you’ve been following this blog over the past few months, you know one of my favorite stocks to talk about these days is Netflix (NFLX). And after the closing bell on Monday, Netflix released its third-quarter sales results. As you can imagine, I was paying close attention. In today’s blog, I’ll take a look at these results, and we’ll discuss what they could mean for you going forward.

First things first, NFLX missed overall earnings. However, its third quarter results still topped the consensus estimate. How does that happen? Well, it’s simple…

Netflix revealed it added 5.3 million new subscribers during the third quarter, which was much higher than expectations for 4.5 million new subscribers. Breaking it down, a whopping 4.45 million subscribers came from overseas markets, while 850,000 were in the U.S.

Given the increase in subscribers during the quarter, it’s not surprising Netflix reported third-quarter sales jumped 30.6% year-over-year to $2.99 billion, up from $2.29 billion in the third quarter of 2016. That beat analysts’ estimates for $2.97 billion by a hair.

Also, net income surged 151.6% year-over-year to $129.6 million, or $0.29 per share, up from $51.5 million, or $0.12 per share, in the same quarter a year ago. However, the consensus estimate was for $0.32 per share, so Netflix did post a -9.4% earnings miss.

Looking ahead, however, Netflix stated it’s increasing its content budget to $7 billion to $8 billion next year. Clearly, the company is spending big to produce more original TV shows like "Orange Is the New Black" and "House of Cards."

Also, for the fourth quarter, Netflix is expecting earnings of $0.41 per share on $3.27 billion in sales. That represents 173.3% annual earnings growth and 31.9% annual sales growth. Netflix’s fourth-quarter forecasts are also above the current consensus estimate for earnings of $0.33 per share on $3.15 billion in sales.

Overall, this was a strong third-quarter report for Netflix. While it’s disappointing the company missed earnings estimates, new subscribers tend to be more important than actual earnings and sales results. So, while NFLX shares opened slightly lower this morning, I look for them to bounce back in short order.

That’s only part of the reason, though, why Netflix maintains an A-rating in my Portfolio Grader tool. If you want to discover even more about this great company, including my exclusive Buy and Sell guidance, then I strongly urge you to consider joining Ultimate Growth. My Ultimate Growth members have the full story on Netflix right now, including my proprietary Buy Below price for the company given my current analysis.

Of course, if you aren’t ready to join Ultimate Growth today, I urge you to stay tuned into this blog throughout earnings season. We’ll continue discussing the announcements I find the most compelling.

Sincerely,

signed: Louis Navellier

Louis Navellier

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