Ahead of Netflix’s (NFLX, Financial) second-quarter earnings on July 17 after the market close, the stock remains volatile, falling from $158 in the last week of May to $146, and then recovering to the current $153 levels. Netflix’s first-quarter earnings came in line with market expectations but, as was the case with Netflix’s previous results, the stock will move sharply with any good or bad news from second-quarter earnings.
During the first quarter, Netflix added 4.95 million members, forecasted 3.2 million net adds during the second quarter and is expecting to cross the 100 million user base milestone by reaching 101.95 million worldwide members. Of the 3.2 million users, Netflix expects to add 2.6 million members in the international segment and 600,000 members in the U.S.
The 3.2 million user base addition for the second quarter is nearly twice the 1.68 million users Netflix was able to add between the first and second quarters of 2016, and the stock was hammered after second-quarter 2016 results came out, dropping 15%. But Netflix got back its user base growth momentum in the second half of 2016, which it expects to continue during the second quarter of 2017 as well.
Netflix has forecasted revenue of $2.755 billion, a growth of 30.9% compared to the prior quarter, and earnings per share of 15 cents, with an operating margin of 4.4%, which is slightly better than the 3.3% margin it reported during the second quarter of 2016. Consensus Wall Street estimate is for revenues of $2.76 billion and earnings per share of 16 cents, which is in line with the company’s own forecasts.
Netflix continues to trade around seven times sales, and news is bound to make the stock move sharply in either direction. If you already have a position and the second quarter ends up being a bad one for the company, which is unlikely given its first-quarter performance, just hold on to the stock, and it will get back on track after some time. If it does drop, that’s the time to zero in.
Disclosure: I have no position in the stock mentioned above and no intention to initiate a position in the next 72 hours.
