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Netflix’s EPS Beat Estimates but Fall YoY in Q4

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Jan. 18 2019, Published 3:28 p.m. ET

Netflix’s earnings

Netflix (NFLX) reported mixed results for the fourth quarter of 2018 after the closing bell on January 17. The online video streaming giant exceeded its earnings estimates but failed to meet its revenue estimates in the quarter. It has surpassed its earnings estimates in the past four consecutive quarters.

Netflix reported adjusted EPS of $0.30 in the fourth quarter, beating Wall Street’s consensus estimate of $0.24. In 2018, Netflix’s EPS of $2.68 also exceeded analysts’ estimate of $2.66.

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Earnings fell YoY

Though the company’s earnings beat analysts’ expectations, they fell nearly 28% YoY (year-over-year) from its EPS of $0.41 in the fourth quarter of 2017. Its earnings fall was mainly the result of its aggressive investment in original content. At the end of the third quarter of 2018, Netflix had plans to spend nearly $8.4 billion on original programming over the next 12 months.

Rivals Amazon (AMZN), Hulu, and Apple are also investing in original content to attract subscribers. According to the Diffusion Group, Netflix, Hulu, and Amazon Prime are expected to spend $10 billion annually and triple their combined investment in original shows by 2022. Hulu is jointly owned by Comcast (CMCSA), AT&T (T), the Walt Disney Company (DIS), and 21st Century Fox.

As a result of its higher spending on original shows and programming, Netflix’s operating income fell 11.8% to $216 million in the fourth quarter. Its operating margin also contracted 230 basis points to 5.2%, as it launched several titles in the quarter.

First-quarter outlook

In the first quarter, the company expects to post EPS of $0.56, much lower than analysts’ consensus estimate of $0.63 and its previous year’s EPS of $0.64. The company is also predicting an operating income and margin of $400 million and 8.9%, respectively, in the first quarter, down from the previous year’s $447 million and 12.1%, respectively.

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