Chill Out (NFLX Earnings Preview)

Netflix (NFLX) is set to report Q3 results after the bell with the shareholder interview set to commence at 6:00pm ET. 

Cap IQ Consensus estimates Q3 EPS of $0.32 (vs. $0.12 in 3Q16), w/revs of $2.97 bln (+29.6% y/y). 

Last quarter Netflix reported Q2 net subscriber streaming additions of +5.2 mln (+1.07 mln in the U.S. and +4.14 mln international) which was better than prior guidance of +3.2 mln.

Netflix expects Q3 to come in around +4.4 mln (+0.75 mln U.S. and +3.65 mln international) for net adds.

Fundamentals:

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Analysts

• Target raised to $235 from $200 at Goldman (October 13th). 
• Target raised to $225 from $210 at JP Morgan (October 13th). 
• Target raised to $230 from $200 at Stifel (October 12th). 
• Target raised to $225 at Morgan Stanley (October 11th). 
• Target raised to $225 from $190 at UBS (October 4th).

Q3 Guidance

• Total Streaming
  • Revenue $2.9 bln
  • Total Membership 108.35mln 
  • Net Adds 4.40 mln
• Domestic Streaming
  • Revenue $1.553 bln
  • Contribution Margin 37.1%
  • Total Membership 52.67 
  • Net Additions 0.75 mln
• International Streaming
  • Revenue $1.306 bln
  • Contribution Margin 2.3% 
  • Total Memberships 55.68 mln 
  • Net Adds 3.65 mln

Options Activity

Based on NFLX options, the current implied volatility stands at ~44%, which is 48% higher than historical volatility (over the past 30 days). Based on the weekly NFLX October $200 straddle, the options market is currently pricing in a move of ~8% in either direction by October expiration (Friday).

TECHS:

The Q2 net subscriber additions beat caused shares of Netflix to close up 13.5% the following day to $183.60/share, and since their Q2 earnings on July 17th shares have rallied 25%. Year-to-date Netflix shares are up 61.1% vs. +14.1% for the S&P. For momentum to continue investors will be listening for signs of continued subscriber growth, especially internationally.