The streaming giant Netflix (NFLX) will publish its third quarter financial results this month. NFLX has so far experienced a strong uptrend in 2017 and rose by 49%. With such a strong rally, the pressure is of course high when Netflix presents its numbers. The question arises here what investors should consider when Netflix reports the results for the third quarter?
Netflix has seen significant growth in sales and earnings per share recently. Analysts expect these trends to continue in the third quarter. They expect the company to achieve an average revenue of 2.97 billion US dollars. In the prior-year quarter, it was 2.29 billion. For earnings per share, the consensus estimate is $0.32 compared to $0.12 in the prior-year period.
The analysts expect the same as the management. This is useful as the forecast for the second quarter could be achieved precisely.
Management expects third-quarter sales growth to be primarily in the international market. The company expects sales of $1.3 billion in international business for the third quarter, representing a tremendous increase from the 853 million last year. The company expects revenues in the US will also be good. The company has grown from $1.56 billion, compared to 1.3 billion last year.
The number of new customers surprised investors in the second quarter. The company was able to gain an impressive 5.2 million new members, but expected only 3.2 million. After Netflix had admitted that they had underestimated how popular the content would be, the company delivered a more bullish forecast for the third quarter. Netflix expects to reach 4.4 million new customers after winning 3.75 million new members in the third quarter of 2016. Netflix expects that 750,000 of these new members will come from the US and 3.65 million from the international market.
At the start of the year, Netflix said it wanted to increase its operating margin after an average operating margin of 4% over the past two years. Netflix has met its plans to balance growth and profits so far. In the first half year, the company not only increased the number of members faster than expected, but also the operating margin was 7.1% during this period.
According to management, the third quarter is expected to reach an operating margin of 6.9%. Investors should ensure that they not only confirm the margin for the full year, but also provide plans on how the operating margin should develop further in 2018 and beyond.
The results for the third quarter will certainly be of great interest to investors. A higher share price also means that Netflix must exceed expectations in order to impress its shareholders.