- Analysts estimate adjusted EPS of $1.65 vs. $0.76 in Q1 2020.
- Total paid subscribers expected to rise YOY.
- COVID-19 may boost sales, profits as home entertainment viewership soars.
Shares of Netflix, Inc. (NFLX) have risen more than 22% in 2020, a stark contrast to the broader market, where gains have been eviscerated by the global economic shutdown and the COVID-19 pandemic. The key driver of that bullishness may be that homebound consumers have sharply boosted their viewing of movies and TV shows on Netflix, as well as at rivals Walt Disney Co.'s (DIS) Disney+ and Apple Inc.'s (AAPL) Apple TV+. The coronavirus pandemic forced sharply increasing numbers of Americans to shelter at home as the latest quarter progressed. Netflix investors will be looking for details on how much this trend is boosting Netflix when the company reports earnings for Q1 2020 on April 21, 2020 after the market.
A key metric that investors are likely to focus on is growth in total paid subscribers at Netflix for Q1. Netflix needs to grow its subscriber base to boost its earnings on a sustained basis. For Q1 2020, analysts expect robust growth in earnings and revenue as paid subscriptions rise. That could boost the shares even more if the company beats estimates. Although Netflix has significantly outperformed this year, it has slightly outperformed the broader market overall in the trailing 12-month period through Friday's market close.
Netflix shares had a bumpy ride in 2019. They fell dramatically after the company reported a 29.7% decline in adjusted earnings per share and as U.S. users fell for the first time in nearly 10 years. Despite that, Netflix shares rose throughout the remainder of the year partly due to strong growth in both revenue and international subscribers. The company has reported steady year-over-year quarterly growth in revenue every quarter for more than three years, with revenue doubling from Q2 2017 to Q4 2019. Analysts expect this trend to continue into Q1 2020. Consensus estimates are for revenue of $5.7 billion, a YOY increase of 27.0%.
By contrast, EPS has been more volatile in recent quarters. Adjusted EPS has been marked by huge YOY quarterly gains, including by more than 572% in Q1 2017. However, both Q4 2018 and Q2 2019 saw sharp YOY declines in quarterly adjusted EPS. Analysts have a very different forecast for Q1 2020, estimating that adjusted EPS will climb by 116.9% YOY to $1.65 when Netflix releases its next report.
|Netflix Key Metrics|
|Estimate for Q1 2020 (FY)||Actual for Q1 2019 (FY)||Actual for Q1 2018 (FY)|
|Earnings Per Share ($)||1.65||0.76||0.64|
|Total Paid Subscribers (M)||$173.1||148.9||118.9|
The metric that is perhaps most valuable to investors is Netflix's total paid subscriptions, a key driver of performance. Paid subscriptions are crucial for Netflix to increase profits because its ability to raise prices has been limited by the entrance of new streaming rivals such as Disney and Apple. The number of quarterly domestic total paid subscribers has remained essentially flat for each quarter in 2019, climbing from 60,229 in Q1 2019 to 61,043 in Q4 2019, with Q2 2019 actually showing a loss of domestic paid subscribers compared to the previous quarter.
However, the company's overall total paid subscribers have increased, owing primarily to growth in international streaming memberships. From Q4 2017 to Q4 2019, for example, Netflix's paid international subscribers nearly doubled to more than 106,000. In January, before the full force of the pandemic became apparent, Netflix warned of slowing paid subscriber growth in Q1. Now, three months later, the seismic rise in home viewing could dramatically change Netflix's numbers, fueling its growth.
Netflix, Inc. "Netflix to Announce First-Quarter 2020 Financial Results," Accessed April 12, 2020.
Wall Street Journal. "Netflix Reports First Drop in U.S. Users in Nearly a Decade," Accessed April 13, 2020.
Netflix Investor Relations. "Fourth Quarter Earnings Letter to Shareholders," Page 1. Accessed April 12, 2020.
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