Can Netflix Surpass Its Q3 2018 Earnings Guidance?

EPS outlook

Netflix (NFLX) is slated to report its third-quarter earnings on October 16. Netflix expects its third-quarter EPS to reach $0.68, which is on par with analysts’ estimates.

The streaming giant’s projected earnings per share are much higher than the company’s EPS of $0.29 for the third quarter of 2017. The expansion of its domestic and international subscriber numbers may allow Netflix to meet its bottom-line guidance.

Can Netflix Surpass Its Q3 2018 Earnings Guidance?

From the graph above, we can see Netflix’s EPS growth in the last five quarters. During this period, its EPS grew at a CAGR (compound annual growth rate) of 54.3%. In the last five quarters, the Internet entertainment operator easily outpaced its earnings guidance, which indicates that the upcoming quarter may be similar.

Headwinds and tailwinds

Netflix (NFLX) is taking some aggressive steps to boost its international subscriber growth. The company is investing in a variety of local shows that it believes can strengthen its international presence. The company is targeting the highly populated Indian market, which may support its EPS outlook.

However, the company’s rising content costs may act as a major headwind for its bottom-line growth. In the last five quarters, Netflix’s marketing expenses have climbed at a CAGR of 17.8%.

In contrast to the international market, Netflix’s video streaming service is a known commodity in the United States. The US domestic market seems to be getting overcrowded with the availability of OTT (over-the-top) service providers like Verizon’s (VZ) Fios TV and Comcast’s (CMCSA) Xfinity service.

The change in consumers’ viewing habits has induced these cable and satellite players to provide Internet TV services to its customers. So, the highly competitive domestic business may not only impact Netflix’s top-line growth but also subdue its EPS growth.