Stock of the day 14/07/2015 – Netflix Inc

Its continual achievement of new highs has seen Netflix begin to join Apple in terms of its prestige-stock status in 2015, something the company will want to continue with its second quarter earnings release on Wednesday.

A 26% fourth quarter rise in revenue, announced near the end of January, got the stock off to a perfect start, lifting it to a new high (the first of many) of $457.28 by the end of the month, from a 2015 starting price of $342.36. Netflix then chugged along at around this price, cresting at $486.50 before slipping to $413.38 by the start of April.


(Source: IT-Finance.com 14/07/2015)

Mid-April then brought with it the first quarter 2015 results, and whilst the company missed expectations fairly severely with earnings per share of $0.38 against the $0.67 forecast alongside in-line revenue of $1.57 billion, a half a million improvement on analysts’ forecasts in regards to new subscribers, up 2.3 million for the first 3 months of fiscal ’15, saw a 10.5% jump to $530.46 on April 15th alone. Netflix basked in the glow of this report for the following month, before news that it might be close to entering the long-sought after Chinese market lifted it another 4.5% in mid-May to cross the $600 for the first time.

Since then the Netflix has shown no real signs of slowing down; the news on June 10th that shareholders had approved a stock cap of 5 billion shares from the previous limit of 170 million, alongside the announcement of a 7-for-1 stock split on June 23th, pushed it to yet another set of highs and by the end of the month it had crossed the $700 mark. It is currently trading at $707.26 (IT-Finance.com, 14/07/2015).

So what will Netflix have to offer on Wednesday, beyond its new (roughly) $101 stock split price? And, more importantly, will it satisfy the somewhat ludicrous (near Apple-level) high expectations that now surround each of the company’s quarterly updates? Well, earnings per share are expected to suffer once again, falling from $1.15 to $0.31 year on year, whilst revenue is meant to jump to $1.65 billion from $1.34 billion in the same period. Yet, it is likely that these usually headline figures won’t be the ones investors care about. Like in April, focus will be on subscriber growth, alongside updates on Netflix’s ‘accelerated’ international expansion.

Of course, the higher Netflix climbs the louder the naysayers, with the most recent being hedge fund manager David Einhorn, who slammed the stock, stating that ‘in today's market, the best performing stocks are companies where accountability is in the distant future’ in reference to Netflix’s robust performance despite its missed Q1 targets. However, Einhorn remains in the minority for now, with Netflix earning a consensus rating of ‘buy’ with an average target price of $628.39.

Tuesday’s stock news:

With earnings season beginning in earnest this Tuesday, JPMorgan Chase was one of the first big-hitters out of the gate, and it was a largely strong showing for the mega-bank. Earnings per share beat expectations at $1.54 against $1.46 forecast, with a 5.2% increase in profits to $6.29 billion; net revenues, however, saw a slight slip to $23.35 billion from $24.5 billion.

Wells Fargo, on the other hand, didn’t have such a good second quarter, with a marginal slip in profit from $5.73 billion to $5.72 billion year-on-year joined by a slender increase in earnings per share to $1.03 from $1.01. Revenue was somewhat of a silver lining, rising to 1.2% to $21.32 billion; still, however, a miss on analysts’ expectations of $21.7 billion.