For streaming-video giant Netflix (NASDAQ:NFLX), investor expectations ahead of the company's fourth-quarter earnings report are sky high. This is evidenced by the stock's 37% run-up in the past six months alone, as well as the stock's pricey valuation. Will Netflix live up to investors' high hopes when it reports quarterly results?

Netflix has scheduled its earnings report for its fourth quarter on Jan. 22, after market close. Before the quarter's numbers go live, here's a preview of some key areas to watch.

A home theater with a flat-screen TV and a red love seat.

Image source: Getty Images.

Subscriber growth

As usual, Netflix's subscriber growth will be an important area for investors to check on. In recent quarters, Netflix has been posting higher-than-expected subscriber growth, playing a pivotal role in the growing bullishness among investors in Netflix's long-term growth potential.

Subscriber growth in Netflix's third quarter was exceptionally good. Netflix added 5.3 million new members during the period, handily exceeding management's guidance for 4.4 million net member additions. Of these 5.3 million net adds, 0.85 million were added in the U.S. and an impressive 4.45 million were added internationally.

For Netflix's fourth quarter, management expects even more quarterly additions. Management forecast net adds of 6.3 million during the period. It expects to add 1.25 million in the U.S. and 5.05 million internationally.

International profitability

Given how much subscriber growth Netflix is seeing internationally, there's good reason for investors to be concerned with profitability in the market. Fortunately for investors, Netflix's international contribution margin is on the upswing.

After regularly reporting negative contribution margins for the segment, Netflix has reported an international contribution profit in two of its last five quarters. Further, Netflix said in its third-quarter shareholder letter that it was on track to have positive international contribution margin for its full-year 2017 results.

For the company's fourth quarter, management guided for an international contribution margin of 7.4%, above its third-quarter international contribution margin of 4.7% and significantly better than its contribution margin of negative 7% in the fourth quarter of 2016.


In light of Netflix's premium valuation -- sporting a price-to-sales ratio of 9 and a price-to-earnings ratio of about 220 -- investors will likely be just as concerned with management's forecast for future growth as they are with Netflix's fourth-quarter results.

For Netflix to keep up the subscriber growth rates it lately has been delivering, look for management to guide for first-quarter net member additions of about 6.3 million. First-quarter net member additions at this level would put sequential member growth in the 5% to 6% sequential growth range that Netflix's third-quarter subscribers and fourth-quarter guidance for subscriber additions imply.

Netflix's guidance for first-quarter revenue will similarly be a hot topic. Analysts, on average, expect first-quarter revenue of $3.49 billion, up 32.4% year over year. This is in line with Netflix's recent revenue growth, as the company grew its third-quarter revenue by 33% year over year. Investors should look for revenue guidance to meet or exceed this consensus estimate for the period.

Overall, Netflix will need to convince investors it's poised for more strong growth in its overall business in 2018.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.