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What to Expect When Netflix, Inc. Reports Q3 Results

By Anders Bylund - Oct 12, 2017 at 7:24AM

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Investors should focus on subscriber growth, profitability, and the predicted effects of a recent pricing change for American customers.

Netflix (NFLX 2.90%) is preparing to report its third-quarter results on Monday night. The company has been in the news a lot lately, breaking ties with Walt Disney (DIS 1.84%) and raising service prices, so this report should be interesting -- to say the least.

Here's what investors should expect from Monday's earnings report.

Netflix's Q3 by the numbers

Metric

Q3 2017 Guidance

Q3 2016 Result

Expected Year-Over-Year Growth

Revenue

$2.97 billion

$2.29 billion

30%

Total streaming subscribers, domestic

52.7 million

47.5 million

11%

Total streaming subscribers, international

55.7 million

39.3 million

42%

GAAP net income

$143 million

$52 million

175%

Earnings per share (diluted)

$0.32

$0.12

167%

Data source: Netflix. Chart by author.

Netflix hopes to add 750,000 net new memberships in the U.S. market for the third quarter, while international growth should stop at 3.7 million new accounts, for a total of 4.4 million net additions. Management does not offer guidance targets for cash flow but has stated that free cash flow should remain negative for at least a couple of years ahead because of high up-front costs for production of Netflix originals.

Netflix logo, embossed in white on white.

Image source: Netflix.

What's new?

Early in the third quarter, Disney said that it would not renew its Netflix distribution contract when it expires at the start of 2019. Instead, the House of Mouse is launching its own streaming services based on technology from BAMTech, a streaming platform originally managed by Major League Baseball. That announcement should not make much of an impact on Netflix's third-quarter results since the actual separation is more than a year away. Still, expect analysts to prod Netflix's management on the earnings call for more information about this split, as well as details on how the company plans to make up for the impending lack of Disney content.

Later, the company bumped up the monthly fees for two of its three streaming service plans in the U.S. market, as follows:

Netflix Plan

Old Monthly Fee

New Monthly Fee

Change

1 screen, standard definition

$7.99

$7.99

0%

2 screens, high definition

$9.99

$10.99

10%

4 screens, ultra-high definition

$11.99

$13.99

17%

Data source: Netflix. Chart by author.

These new prices are effective immediately for new subscribers and will roll out to existing customers over the next couple of months. The changes were implemented after the end of the third quarter, so they will not affect the results reported next week. Still, investors need to know how management expects this move to affect revenue and subscriber growth going forward.

If nothing else, the short-term effects of the pricing change should make themselves known in guidance figures for the fourth quarter.

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Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
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The Walt Disney Company
DIS
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