Netflix Earnings Preview: Analysts Looking for 'Orange' Sub Boost, International Updates
UPDATED: Wall Street observers say investors will look for possible updates on expected service launches in France, Germany and four other European markets this fall.
When Netflix reports its second-quarter earnings on Monday afternoon, analysts expect it to post higher U.S. subscriber numbers, helped in part by original hit show Orange Is the New Black.
Wall Street observers also say they are looking for the latest updates on how the streaming video company's international business is doing and when exactly it will launch in several key European markets, including France and Germany.
"We expect Netflix to post strong subscriber net adds, boosted by the return of Orange Is the New Black for its second season, as well as lower churn in the quarter from a streaming price increase in May," said BMO Capital Markets analyst Edward Williams. In the price change, existing subscribers were told they will continue to pay $7.99 monthly for two years, while new subscribers are charged $8.99.
Williams expects the company added approximately 900,000 streaming subs in the U.S. and 1.1 million subs abroad during the quarter. He has a "market perform" rating and $400 price target on Netflix stock.
Cowen & Co. analyst John Blackledge said that investors will also closely watch third-quarter guidance for the international business and listen out for possible comments on the "progress of international expansion, including expected market entry into France and Germany and four other European markets" this fall.
He also has a "market perform" rating on the stock and a $355 price target.
Williams recently lowered his full-year 2014 earnings estimate "to reflect greater than previously expected marketing spending with the upcoming launches in six additional countries in Europe late this year."
Stifel Nicolaus analyst Benjamin Mogil also commented on the costs of new market launches and how they will affect third-quarter earnings guidance. "Third-quarter consensus expectations are below those of ours, with the difference likely coming from international loss expectations tied to new market launch costs," he said. "Excluding the launch costs in the third quarter, we expect that the international streaming segment would be breakeven."
He added: "Any material deviation on this front tied to launch costs, which are timing related and not structural issues in the core international segment, will probably allow investors to give the company a pass on a miss in this segment."
Mogil has a "buy" rating with a $475 target price on Netflix shares.
Goldman Sachs analyst Heath Terry recently upgraded Netflix's stock from "neutral" to "buy" with a price target of $590.
"As Netflix leverages the growth in the connected device ecosystem and continues to expand internationally, we believe subscriber growth will continue to exceed expectations, driving margin expansion through significant scale benefits in content sourcing, customer acquisition and technology," he said.
He estimated that Netflix’s addressable market of possible subscribers would more than double over the next three years to 207 million.
Correction: This article earlier incorrectly stated that BMO analyst Edward Williams predicted 900,000 million subscriber additions in the U.S. in the latest quarter instead of 900,000, or 0.9 million.