If you're a Netflix (NASDAQ:NFLX) shareholder -- like me -- you're heading into Monday afternoon with a twisted blend of dread and excitement. Netflix has been one of the market's biggest winners this year, and that will naturally raise expectations heading into its second-quarter earnings report coming out shortly after Monday's closing bell.
Netflix itself established a pretty high bar when it put out its guidance for the second quarter in mid-April. The leading premium video service sees revenue soaring 41.2% to hit $3.934 billion, making this its third consecutive quarter of accelerating growth and its biggest top-line percentage gain since late 2011. You don't expect a company that has penetrated the market this deeply to be putting the pedal to the metal at this phase of its growth cycle.
The dot-com darling set even higher expectations for its bottom-line performance. Its guidance calls for a profit of $0.79 a share, a better-than-fivefold advance in earnings. The $358 million in net income would shatter its quarterly profit record, and it's more than Netflix has earned in an entire year outside of 2017. The fundamentals are clearly improving at Netflix, but with the stock already soaring 115% in 2018 through Thursday's close, we're looking at a long way down if Monday's quarterly report doesn't at least meet, if not exceed, expectations.
Flicks and stones
Wall Street's sticking close to Netflix's own guidance. Analysts also see a profit of $0.79 a share on $3.94 billion in revenue. Wall Street pros have been jacking up their price targets in recent weeks, making this an odd look with market expectations so close to where Netflix itself was perched three months ago.
Bulls will argue that analysts staying close to Netflix's seemingly stale public projections offers up a golden opportunity for an earnings beat given the media giant's historically conservative guidance. Bears will counter that Netflix's market cap growing by nearly $50 billion over the past three months, with analyst estimates essentially marching in place, creates an unjustifiable multiple expansion.
They can't both be right, but the real driver in Monday's after-hours trading and through Tuesday will be Netflix's guidance. Analysts are bracing for a sequential dip in profitability in the third quarter. They're also pegging 38% in revenue growth for the period, a model that calls for the streak of accelerating top-line growth to end in the second quarter.
Netflix's second-quarter performance and its early read on the current quarter won't be the only factors that could move the stock higher or lower. Netflix peppers its quarterly shareholder letter with insights on international moves, content wins, and engagement trends. The only certainty here is that the stock will be on the move early next week, just the way it has typically been a volatile beast immediately following its quarterly updates.