Netflix Earnings Preview: High Expectations Ahead of Q2 Results

Netflix reports earnings after market close on Monday, July 16. Read more for a look at what might be expected from the video streaming giant’s Q2 report.

Print
https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Couple watching Netflix show
3 min read

Netflix (NFLX) reports second-quarter earnings after market close on Monday, July 16. The stock has had a massive rally in 2018, starting the year at $196 and recently trading around $400.   

As has been the case in the past several quarters, analysts have been primarily focused on the company’s international growth as domestic growth has slowed. In Q1, NFLX added 7.41 million subscribers, 1.96 million from domestic and 5.46 million from international.  That was about 900,000 more than analysts had been expecting, helped by faster growth in domestic subscribers. 

For Q2, management issued guidance for 6.2 million subscriber additions, for a total of 131.2 million subscribers. 5 million of that is expected to come from international growth, and 1.2 million from domestic growth. 

On Monday, NFLX is expected to report adjusted EPS of $0.80 on revenue of $3.94 billion, according to third-party consensus analyst estimates. In the same period last year, NFLX reported adjusted EPS of $0.15 on revenue of $2.79 billion. 

When the company last reported, revenue grew 40.4% year over year to $3.7 billion and adjusted EPS was $0.64. At the same time, free cash flows were negative $237 million. With that report, management said it expects negative free cash flow between $3 billion and $4 billion for all of 2018. 

Management also said it expects negative free cash flows to continue for several years as it continues to invest heavily in creating new content. In 2018, the company said it plans to have between $7.5 to $8 billion of content expenses.

NFLX has consistently raised debt to fund that content spending. In its last earnings report, management said they will continue to raise debt as needed to fund more original content, and that they “believe debt is lower cost of capital compared to equity.” 

The company priced a $1.9 billion debt offering in April, more than the $1.5 billion it had originally planned. In Q1, NFLX’s interest expense was $81.2 million, up from $46.7 million in Q1 2017. 


NETFLIX 2018 STOCK CHART. Netflix is up almost 100% year-to-date heading into its Q2 earnings report. Over the past month, the stock has hit resistance around the $420 level, brushing up against that level several times. On Friday, the stock pulled back ahead of Monday’s report and closed down $17.70 to $395.80. Chart source: thinkorswim® by TD Ameritrade.   Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Netflix Trading Activity

Month after month over the past year, NFLX has regularly been one of the top net buys among TD Ameritrade clients, based on the Investor Movement Index®, or IMXSM

Around the upcoming earnings release, options traders have priced in about an 8.2% stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 65th percentile as of this morning. 

In short-term trading at the July 20 monthly expiration, calls have been active at the 400 and 410 strike prices, with volume of more than 6,000 contracts at each of those strikes during Friday’s session. Volume has been a little bit lighter on the put side and recent trading has been concentrated at the 400 strike. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Next up in Earnings

Q2 earnings season is underway and these are some of the other major reports this week:

    • Goldman Sachs (GS) and Johnson & Johnson (JNJ) before market open Tuesday, July 17
    • Morgan Stanley (MS) reports before market open Wednesday, July 14, and IBM (IBM) after market close the same day
    • Microsoft (MSFT) after market close Thursday, July 19 
    • General Electric (GE) before market open Friday, July 20

    For a look at what else is going on, check out today’s Market Update

    Good Trading,
    JJ

    Visit the TD Ameritrade Markets Overview page for timely market information, articles, snapshots, earnings releases, and more.

    Looking to stay on top of the markets on a daily basis? Check out my Daily Market Update on the Ticker Tape.  Or tune into the TD Ameritrade Network, which is live programming that brings you market news and helps you hone your trading knowledge.

    The TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation.
    Call Us
    800-454-9272
    Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.
     
    TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.
     
    Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

    adChoicesAdChoices

    Market volatility, volume, and system availability may delay account access and trade executions.

    Past performance of a security or strategy does not guarantee future results or success.

    Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

    Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

    The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

    This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

    TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.

    Scroll to Top