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Netflix (NFLX) Stock Sinks 1.9% Ahead of Q3 Earnings: What to Watch

Shares of Netflix NFLX dipped 1.9% during regular trading hours Monday just one day before the streaming TV giant’s third-quarter earnings release. With that said, let’s take a look at what investors should expect from Netflix’s Q3 financial results Tuesday.

Netflix fell short of its own subscriber projections by 1 million last quarter. This shocked investors because the firm had topped its own subscriber projections in seven out of the previous nine quarters, including four straight beats of roughly 1 million or more.

The company expects to add 650,000 subscribers in the U.S. and 4.35 million internationally in the third quarter to help it reach 135.14 million subscribers worldwide. And our Non-Financial Metrics are calling for Netflix to add 669,450 U.S. subscribers and 4.40 million international members.

On top of these key subscriber estimates, which will likely drive trading for some time, Netflix recently put an end to HBO’s 17-year streak at the top of the Emmy nomination list. And it looks poised to roll out even more new shows and movies, some of which feature A-list Hollywood stars. Netflix also knows that critically acclaimed content will help it stand out against Amazon AMZN and soon enough Apple AAPL, Disney DIS, and AT&T T in a crowded streaming TV market.

 

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We can see that NFLX stock is still up big over the last 12 months. Plus, Netflix’s Q3 revenues are projected to surge by 33.7% to hit $3.99 billion, based on our current Zacks Consensus Estimate. Meanwhile, the streaming company’s international revenues are expected to climb from $1.33 billion to $1.97 billion, based on our NFM estimates.

Moving on, Netflix is expected to see its adjusted quarterly earnings soar 134.5% to reach $0.68 per share. However, we still need to know if NFLX has a chance to top our quarterly earnings estimate.

Luckily, we can turn to our exclusive Earnings ESP figure to help us. The Zacks Earnings ESP (Expected Surprise Prediction) compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter. The Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change.

This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Netflix currently sports an earnings ESP of +0.71% and a Zacks Rank #3 (Hold). Therefore, investors can consider NFLX a company that could beat our quarterly earnings estimate. Investors should note that Netflix has only topped our estimates twice in the last five periods. But it is worth remembering that Netflix stock is likely to trade based on its Q3 subscriber results, especially in the short-term.

Netflix is scheduled to release its Q3 financial results after the market closes on Tuesday, October 16.

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The Walt Disney Company (DIS) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
AT&T Inc. (T) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
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