It's going to be a busy week of earnings reports next week, but Netflix (Nasdaq: NFLX ) should still attract plenty of attention.
Analysts aren't holding out for much. They see the leading video service cranking out a profit of $0.05 a share, well short of the record $1.26 a share that it posted a year earlier. However, there are a few reasons to get excited ahead of its quarterly report on Tuesday.
Let's go over the major reasons to get excited.
1. Streaming is booming at Netflix.
Forget about the poorly communicated rate increase last summer and the short-lived Qwikster fiasco. Anyone who despised Netflix for what transpired has moved on, and Netflix is signing up far more streaming subscribers than those calling it quits.
Anyone wanting proof -- beyond a strong first quarter in terms of streaming subscriber additions -- got it earlier this month, when CEO Reed Hastings revealed that his company served up more than a billion hours of streaming video last month.
Contrary to popular belief, Netflix is already making a lot of money on its stateside streaming business. It's the company's international endeavors that are gnawing away at its profitability, especially in the U.K., where it's bumping up against more established rivals, BSkyB and Amazon.com's (Nasdaq: AMZN ) LOVEFiLM.
Yes, Netflix is shedding DVD accounts, and slaughtering that cash cow isn't pretty. However, as a streaming business, Netflix has never been bigger than it is right now.
2. The competition is not getting any closer.
Remember when Amazon rolled out a streaming service for Amazon Prime shoppers at no additional cost? Remember Coinstar's (Nasdaq: CSTR ) Redbox promising a digital strategy a year ago, or the streaming service that it's expected to roll out later this year with Verizon (NYSE: VZ ) as a partner?
No one has come even close to Netflix's breadth of streaming content, laundry list of playback devices, and roughly 26.5 million streaming customers. If anything, the gap appears to be widening with every passing quarter.
Cynics will argue that the model isn't as lucrative as bulls believe that it will be, but Netflix's moat is apparently pretty impenetrable.
3. The market should start valuing Netflix on its stateside business and international potential.
Few will argue that Netflix is cheap, but that's exactly what Citigroup analyst Mark Mahaney did earlier this month, arguing that Netflix is cheap because it trades for just 12 times the earnings of its domestic business.
Should investors be penalizing Netflix for deficits as it expands into new regions? If Netflix decided to shutter all of its unprofitable international outposts, would the stock rally to reflect its low profit multiple? It wouldn't. Global expansion is a big part of the company's scalable model, and the sum of Netflix's parts is currently being undervalued by investors.
If Netflix is able to communicate Mahaney's message -- and it already does this by breaking out its international and domestic operations in its quarterly reports -- valuation skeptics will realize what they're missing.
Netflix isn't broken -- and it may be cheap. A strong report on Tuesday would be a great way to get that point across.
Netflix isn't seen as a globetrotter play because it's currently struggling to turn a profit overseas. There are plenty of American companies that have been more successful. A new report details the three U.S. companies set to dominate the world. It's totally free, but you don't want it to leave the country without you, so check it out now.