Will Netflix Show its Final 2013 Win?

Netflix (NASDAQ: NFLX  ) reports fourth quarter and full-year earnings on Wednesday. The past year has brought exciting changes to the streaming service with the launches of award-nominated original programs. Blockbuster's death further proved Netflix's cultural impact and the company is handily besting competitors such as Redbox owner Outerwall (NASDAQ: OUTR  ) and television cable provider Time Warner Cable (NYSE: TWC  ) . 

The past year featured the launches of House of Cards and Orange is the New Black, two award-nominated series that received a great deal of buzz for Netflix. Robin Wright recently picked up a Golden Globe award for her work on House of Cards and Netflix's original documentary The Score has been newly nominated for an Oscar. 

However, it's not all good news for Netflix. DVD subscriber count has weakened and the slow growth of the international segment is eating into profits.

Here's what to look for in the fourth quarter earnings release. 

Quarterly estimates -- and results -- to beat
Analysts estimate Netflix will report fourth-quarter revenue of $1.2 billion and earnings per share of $0.64; full-year estimates call for revenue of $4.4 billion and EPS of $1.86. Netflix has met or beat estimates for the past five quarters.  The company offered fourth quarter guidance in its last report for $736 million in domestic revenue and $217 million in international revenue. Contribution profit guidance was $172 million for domestic and a net loss of $65 million for international. 

In the fourth quarter last year, Netflix reported $945 million in revenue and EPS of $0.13. Full-year results for 2012 included revenue of $3.6 billion and EPS of $0.29.

Check the subscription numbers
Netflix's midpoint guidance predicted the net additions of 2.01 million domestic subscribers and 1.31 million international subscribers. That would bring the segment subscriber totals up to 33.1 million and 10.5 million, respectively. 

In last year's fourth quarter, Netflix added 2.1 million domestic streaming subscriptions in the fourth quarter and the company had nearly 25.5 million paid subscriptions. International streaming subscriptions grew by 1.8 million to include nearly 5 million paid subscriptions. However, DVD subscriptions had a weaker performance with a net loss of 380,000.  

Netflix has since stopped breaking out the DVD subscription count separately in its releases and instead combines that number with streaming subscriber count to report a total number. The recent third-quarter report included a net addition of 1.3 million domestic subscribers and nearly 30 million paid subscriptions. International added 1.4 million and it had 8 million paid subscriptions.  

Competitor comparison
Outerwall stands as the closest competitor to Netflix with its Redbox rental service but the company also includes the Coinstar change-counting kiosks. The third quarter report included nearly 200 million Redbox rentals -- a record high that pushed segment revenue up 7% year-over-year.  

Analysts estimate Outerwall will report fourth quarter revenue of $595 million with EPS of $1.25, and full-year revenue of $2.3 billion with EPS of $5.16. Outerwall has beat EPS estimates for the past five quarters but the company missed on revenue for four of those periods. 

Netflix also competes with cable companies, which have seen a decline in video subscribers as more customers opt instead for streaming services.

Time Warner Cable has made headlines recently as buyout talks intensify. The company hasn't seen a net addition of video customers in the past twelve quarters. Time Warner has suffered from an outdated infrastructure and promotional offers that create a cyclical customer stream. The fact that Comcast is also shedding video subscribers shows that it's a general industry trend.

Analysts estimate that Time Warner will report fourth quarter revenue of $5.6 billion with EPS of $1.75 and full-year revenue of $22.1 billion with EPS of $6.55. 

Foolish final thoughts
Netflix will meet or beat analyst estimates and show subscriber additions. However, the profit loss in the international segment will cut into margins. The company doesn't have much to fear from its competitors Outerwall and Time Warner, both of which will report earnings in the next two weeks. 


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