Netflix, Inc. :NFLX-US: Earnings Analysis: Q1, 2017 By the Numbers : April 21, 2017

Netflix, Inc. reports financial results for the quarter ended March 31, 2017.

Highlights

  • Summary numbers: Revenues of USD 2,636.64 million, Net Earnings of USD 178.22 million.
  • Gross margins widened from 30.04% to 37.15% compared to the same period last year, operating (EBITDA) margins now 60.54% from 58.39%.
  • Change in operating cash flow of -50.42% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 2636.64 2477.54 2290.19 2105.2 1957.74
Revenue Growth (%YOY) 34.68 35.88 31.74 28 24.45
Earnings (mil) 178.22 66.75 51.52 40.76 27.66
Earnings Growth (%YOY) 544.38 54.59 75.04 54.76 16.72
Net Margin (%) 6.76 2.69 2.25 1.94 1.41
EPS 0.4 0.15 0.12 0.09 0.06
Return on Equity (%) 25.22 10.25 8.33 6.89 4.87
Return on Assets (%) 5.1 2.06 1.72 1.43 1.03

Access our Ratings and Scores for Netflix, Inc.

Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, NFLX-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if NFLX-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 6.42% and earnings by 167.01% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 30.04% to 37.15% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 58.39% to 60.54% compared to the same period last year. For comparison, gross margins were 33.22% and EBITDA margins were 61.26% in the last reporting period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

NFLX-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 32.49 days from 81.63 days for the same period last year.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

NFLX-US‘s year-on-year change in operating cash flow of -50.42% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 2.53% to 9.75% and (2) one-time items. The company’s pretax margins are now 8.49% compared to 2.04% for the same period last year.

EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Netflix, Inc.

Company Profile

Netflix, Inc. operates as an Internet subscription service company, which provides subscription service streaming movies and TV episodes over the Internet and sending DVDs by mail. The company operates its business through the following segments: Domestic streaming, International streaming and Domestic DVD. Netflix obtains content from various studios and other content providers through fixed-fee licenses, revenue sharing agreements and direct purchases. It markets its service through various channels, including online advertising, broad-based media, such as television and radio, as well as various partnerships. Netflix was founded by Marc Randolph and Wilmot Reed Hastings Jr., on August 29, 1997 and is headquartered in Los Gatos, CA.

CapitalCube does not own any shares in the stocks mentioned and focuses solely on providing unique fundamental research and analysis on approximately 50,000 stocks and ETFs globally. Try any of our analysis, screener or portfolio premium services free for 7 days. To get a quick preview of our services, check out our free quick summary analysis of NFLX-US.