Netflix (NFLX) Reports 2nd Quarter Earnings – What Now?

For those readers new to my blog, I have written two major pieces on Netflix.  I have provided links to both pieces here.

Netflix – Three BIG questions (and answers) about Netflix

NFLX – Two Big Problems for the Bulls on NFLX!

Here is the new model price chart including 2nd quarter financials on NFLX

Netflix with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of NFLX subsequent to this post will be maintained on Facebook, here.

Here is what I said in my first blog on NFLX on January 30th, 2012

Just for fun we will make this prediction!

The more interesting question is what happens when NFLX transits downward through EBV+7.  If and when this happens we think NFLX will find a more comfortable home at EBV+5.  So when will this happen?  We don’t know. When we have done similar work in the past, sometimes the stock price and the math can take years to play out.  We are sure quarterly reporting of NFLX will be a nail-biter over the next year.  This will be interesting and we will be following.

For reference here was our model price chart on April 26, 2012.

NFLX with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

What are we saying now?

Same thing!  NFLX should spend sometime at EBV+5.  This will be the true test for this (maybe former) growth stock.  As NFLX reported, they added 979,000 net subscribers in the second quarter, for a total of 30.1 million subscribers worldwide.  NFLX management also announced further international expansion plans, which management acknowledged is expensive and will hurt profitability, especially in the 4th quarter of this year.

Our model price calculation is based on NFLX earning $0.74 cents in 2012, and $2.13 in 2013.  Will be interesting to see how analysts’ revise their numbers in the coming days.  In other words watch our model price calculation in the next week – it should be interesting.

Will the market wait for NFLX?

This is the $64 million dollar question.  In other words, will the stock price of NFLX hang around EBV+5, while NFLX management sacrifices short-term profits for international market share and with increased competition?  My guess is the market will wait for a couple of quarters, at this level – EBV+5.  However, the market has to be happy at the subscription growth rate and NFLX must be winning over its’ rivals – no small task.  As I have said before, quarterly reporting for NFLX will be a nail-biter over the next year.  What if NFLX breaks EBV+5, you ask?  Next major level of support would be EBV+3.  This presents deadly combination for wounded investors, no upside and potential further downside in the coming quarters.

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