Subscription service provider Netflix, Inc. (NASDAQ: NFLX) is expected to report its Q4 FY 2010 earnings on January 26, 2011. In the last three quarters ended September 2010, Netflix's reported EPS exceeded analysts' consensus estimates for quarters ended March 2010 and June 2010, by margins of 9.30 percent and 12.70 percent. For quarter ended September 2010, the company's reported EPS missed analysts' estimate by margin of 1.40 percent.
Netflix is one of the world's largest video and television episode rental subscription service (in the form of both DVD and Blue-Ray), with more than 16 million subscribers in the US and Canada. On average, approximately two million discs are shipped daily from the company's distribution centers across the United States. In September 2010, the company launched Canadian service for streaming movies and television episodes over internet.
Q3 results missed analysts' consensus estimates
For Q3 FY 2010, Netflix reported revenues of $553.2 million, representing 31 percent increase from $423.1 million reported for the same period FY 2009, and 6 percent increase sequentially from $519.8 million reported for Q2 FY 2010. Gross margin for Q3 was 37.7 percent compared to 34.9 percent for the same period last fiscal, and 39.4 percent for Q2 of FY 2010. Net income for Q3 of FY 2010 was $38 million, or $0.70 per diluted share compared to net income of $30.10 million, or $0.52 per diluted share, for the Q3 of FY 2009, and net income of $43.5 million, or $0.80 per diluted share for the Q2 of FY 2010. For Q3 FY 2010, Netflix ended with approximately 16.9 million subscribers, representing 52 percent year-over-year growth from 11.1 million total subscribers at the end of the Q3 of FY 2009.
Netflix competes with a number of online and retail media rental service providers as well as with cable and satellite television providers. Until its September 2010 bankruptcy, Blockbuster, the country's largest retail video rental store chain, was the closest and most important competitor. However, currently the company faces competition from Amazon.com Inc. (NASDAQ: AMZN) and a privately held company, Redbox Automated Retail, LLC. In the last one year Amazon.com Inc. reported earnings of $2.47 per share, on revenues of $30.78 billion. On the other hand, Netflix reported earnings of $2.64 per share on revenues of $2.01 billion.
Netflix raises Q4 revenue and subscribers guidance
For Q4 of FY 2010, Netflix raised its revenue and subscribers guidance. The company now expects subscribers of 19 million to 19.7 million, up from 17.7 million to 18.5 million for the fourth quarter ending December 2010. The revenues expectations are in the range of $586 million to $598 million, up from $580 million to $596 million, estimated previously. The net income guidance has remained unchanged, and is expected to be in the range of $32 million to $40 million. The EPS is expected to be in the range of $0.59 to $ 0.74 per diluted share, and is unchanged.
Netflix has a P/E ratio of 73.31, which is slightly higher than the industry's P/E of 72.47. The P/S ratio of the company is at 5.03, and industry's P/S is at 0.10, giving indications that the company has reached its growth potential. The quarterly revenue growth rate of Netflix is 30.70 percent.
For the fourth quarter ending December 31, 2010, analysts' EPS estimates range from a low of $0.63 to a high of $0.78 per share, compared to the consensus estimate of $0.71 or $0.56 in the year ago quarter. Analysts' revenue estimates for the fourth quarter range from a low of $589.02 million to a high of $623.50 million, compared to a consensus estimate of $597.23 million or $444.54 million in the same quarter a year ago. For the quarter ended December 31, 2010, the consensus EPS forecast has remained unchanged for the past 90 days, at $0.71 per share.
On August 6, 2009, the company's board of directors authorized a stock repurchase plan to repurchase up to $300 million of its common stock through the end of 2010. Under this program, the company repurchased 3,197,459 shares of common stock at an average price of approximately $47 per share for an aggregate amount of $149 million. On June 11, 2010, Netflix's board of directors authorized another stock repurchase program to purchase up to $300 million of its common stock through the end of 2012. The company has never declared or paid any cash dividends on its common stock. In the last 52 weeks, Netflix Inc.'s stock has been trading in the range of $48.52 and $209.24. In the last one year, Netflix's stock has gained 278 percent to settle at $193.68 on January 18, 2011. Based on the EPS estimates and key financials, I find Netflix's stock to be overvalued, and I see a one year target price of $150.
