Netflix Key Drivers: What to Watch During Earnings

Netflix (NASDAQ:NFLX) stock has been all over the place lately. Shares were more than chopped in half to end last year; but, they’re up 36% year-to-date. Expect the roller coaster to continue after today’s earnings announcement. Here are the key drivers to Netflix business:

Domestic streaming subscribers: Guidance of 20.0 – 21.5 million.

Domestic DVD subscribers: Guidance of 10.3 – 11.3 million.

International subscribers: Guidance of 1.6 – 2.0 million.

Subscription Cancelations and Downgrades: Wedbush Morgan analyst Michael Pachter warns investors, “While Netflix may increase subscribers in 2012, it is paying a steep price to do so, triggering overall losses for the year compared to over $4/share in 2011 profit. Investors should note that each hybrid customer who traded down to a singleservice plan requires a net subscriber addition to offset the foregone revenue. This means that Netflix may grow subscribers without significantly growing revenue or generating incremental operating profit contribution.”

Content Costs: Content costs were once very low for Netflix and allowed the company to grow what has become one of the best distribution platforms in the entertainment business. However, hubris got the best of Netflix in 2012 as the halo got so big, content providers feared another iTunes in the making. Consequently, content providers have begun increasing the prices of their content, in turn pressuring Netflix cash position, margins, and profits.

Wild Cards: Exceptional growth from Netflix’s recent launches in Canada and LatinAmerica, and color on launches in the U.K. and Ireland. Accelerating marketing costs to battle Amazon’s (NASDAQ:AMZN) streaming video property LoveFilm.

For all the earnings and revenue numbers to watch, check out “Netflix Inc. Fourth Quarter Earnings Sneak Peek“.

To contact the reporter on this story: Damien Hoffman at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com