Netflix, Inc. (NFLX) is set to report first quarter 2014 results on Apr 21. Last quarter, it posted a 21.5% positive surprise. We note that Netflix has outperformed the Zacks Consensus Estimate in the preceding four quarters with an average positive surprise of 30.4%.
Let’s see how things are shaping up for this quarter.
Growth Factors
Netflix is facing intensifying competition from the likes of Amazon (AMZN), Hulu Plus and HBO. This could lead to lower subscriber growth. Moreover, increasing content costs remain a significant headwind.
Netflix’s agreement with Comcast (CMCSA) to pay a fee to improve streaming quality is also expected to increase its operating cost. The additional burden may compel Netflix to increase subscription pricing, which can negatively impact subscriber growth.
Nevertheless, the company’s growing subscriber base will continue to be a major growth factor in the near term. Further, the company’s partnerships with cable television providers Virgin Media (in the U.K.) and Com Hem (in Sweden) will boost international subscriber base, going forward.
Earnings Whispers?
Our proven model does not conclusively show that Netflix is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Most Accurate estimate stands at 83 cents, which is coincides with the Zacks Consensus Estimate. Hence, the difference is of 0.0%.
Zacks Rank: Netflix’s Zacks Rank #1 (Strong Buy) when combined with a 0.0% ESP makes surprise prediction difficult.
We caution against stocks with Zacks #4 and #5 Ranks (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here is another company you may want to consider as our model shows it has the right combination of elements to post an earnings beat this quarter:
On Semiconductor Corp. (ONNN), Earnings ESP of +6.67% and a Zacks Rank #1 (Strong Buy).
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