Netflix Earnings: Subscriber Growth & Streaming Outlook in Focus
Source: Netflix's Letter to Shareholders, Q1 2011
Netflix (NASDAQ:NFLX) will report its earnings on Monday. Investors are eagerly awaiting these results given the spate of major announcements over the last quarter, in particular it’s recent price increases for its bundled and DVD-only packages as well as its move into Latin America. The stock has continued its vertical ascent that began in early 2010 when the stock was around $60. As it nears $300, the key question that keeps popping up is whether or not Netflix’s subscriber growth will slow down? This quarter is no different in terms of key factors to watch as subscriber growth is the main focus. Increasingly, growth will be driven by international growth and streaming plans which present some new risks. We look at these below.
Our current price estimate for Netflix stands at $153 though we are currently reviewing our revising our estimates in light of the recent announcements.
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Subscriber Growth, Watch Out for Details
While it may not come as a surprise if Netflix continues to report record subscriber gains in Q2 2011, we will pay closer attention to the type of growth it’s experiencing – DVD or streaming. Increasingly, we believe that it will be useful for investors to segregate the growth in terms of hybrid plans & streaming plans as this helps in understanding Netflix’s prospects better in the following way.
Subscriber growth coming primarily from streaming-only plans implies lesser risks to Netflix’s future growth compared to growth that comes from hybrid plans for two reasons. First, Netflix’s lead in streaming is large enough to continue to attract more subscribers in the near future. Second, recent price hikes for its hybrid plans could create risk for some DVD-focused customers as they could explore other options such has Redbox and Blockbuster, which was recently purchased by Dish Network (NASDAQ:DISH). Therefore, if the subscribers are shifting towards streaming-only plans, we see this is as more encouraging than DVD focused plans.