Netflix expected to grow earnings, subscribers

SAN FRANCISCO (MarketWatch) — With its stock price reaching new highs, and in the wake of the success of scoring three Emmy wins for its original series “House of Cards”, Netflix Inc. is expected to report strong growth in new subscribers when it delivers its third-quarter results on Monday.

Analysts surveyed by FactSet estimate Netflix NFLX +1.31%   will earn 48 cents a share on $1.1 billion in revenue for the quarter ended in September. During the same period a year ago, Netflix earned 13 cents a share on sales of $905 million. For its part, when Netflix reported its second-quarter results in July, the company forecast earnings of between 30 cents and 56 cents a share, and total U.S. and international video-streaming subscribers of 38.8 million to 40.3 million.

The high end of that range would be a 7.5% increase from the 37.5 million total subscribers Netflix had at the end of its second quarter.

Netflix’s performance this year has also been reflected in the company’s stock price, as the shares hit an all-time high of $336.48 on Friday. For the year, Netflix’s stock is up 266%.

RBC Capital Markets analyst Mark Mahaney believes the top item of interest for investors will be Netflix’s subscriber numbers, which he said are within reach.

“Based on intra-quarter datapoints, our channel checks, and our model sensitivity work, we believe Street estimates for the September quarter are reasonable,” Mahaney said, in a research note. Mahaney added there’s a “slightly greater” chance that Netflix will exceed earnings expectations than miss those estimates. Mahaney has a buy rating and $330-a-share price target on Netflix’s stock.

Netflix executives are often asked about whether the addition of original programs such as “House of Cards” and “Arrested Development” earlier this year, and will likely get some questions about the reception to its latest releases, “Orange Is The New Black” and “Derek”. Netflix has never quantified subscriber additions in relation to the release of its original shows.

However, Michael Pachter, of Wedbush Securities, said it is likely that Netflix got a boost in third-quarter subscribers from the debut of “Orange Is The New Black”, in particular, which should help the company at least exceed the mid-point of its new-subscriber forecast range.

Pachter remains one of the most-bearish analysts covering Netflix, and maintains an underperform, or sell rating, on the company’s stock. He “grudgingly” raised his price target on Netflix’s stock last week to $140 a share from $80, in part over concerns about the pace of subscription growth possibly slowing down in the coming years.

“The low hanging fruit of subscriber additions has been gathered,” Pachter said, in a research note. “[And] future domestic subscriber additions will be increasingly harder to come by.”