Netflix Earnings: An Early Look

With dozens of companies having already reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction to news that turns out to be exactly the wrong move.

Let's turn to Netflix (NFLX 1.74%). The DVD and streaming video specialist has had huge ups and downs over the past couple of years, but lately, things have been looking up for the company. Let's take an early look at what's been happening with Netflix over the past quarter and what we're likely to see in its quarterly report next Wednesday.

Stats on Netflix

Source: Yahoo! Finance.

Will Netflix put on a great show?
Analysts have set the bar extremely low for Netflix this quarter, reducing their earnings-per-share estimates gradually but substantially over the course of the past three months. But the stock seems unaffected by the moves, and shares have gained 50% just since mid-October, recently topping the $100 per share mark for the first time since last April.

The big news for Netflix over the past quarter has been its ability to secure promising content deals with major providers. Its blockbuster deal with Disney (DIS -1.01%) last month will give Netflix access to valuable new releases, including Pixar, Marvel, and Lucasfilm. Earlier this month, the company added an agreement to an exclusive license for eight television series with Time Warner's (TWX) Warner Bros. unit, including The West Wing, as well as Turner Broadcasting.

But Netflix still has challenges. Although Coinstar (OUTR) and Verizon (VZ -0.68%) won't be able to roll out its Redbox Instant streaming service until March, the combination of Redbox disc rentals and streaming could be compelling. Moreover, just last week, a federal court ruled that the Postal Service unfairly gave Netflix an advantage over a competing game-rental company, raising the possibility that Netflix's mailing rates could go up or that service could deteriorate.

Earnings per share aren't as important for Netflix right now as subscriber counts and signs of success from its international operations. If the company scores impressive gains on those fronts, then the stock will have justified its big bull run over the past quarter. If not, investors should prepare to take a big hit.

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