Analysts expect strong susbcriber adds for Netflix, but Disney withdrawal looms over second half of 2018

Key Points
  • Revenue estimate: $3.28 billion, according to a Thomson Reuters estimate
  • EPS estimate: 41 cents, per a Thomson Reuters estimate
  • Subscription addition estimate: 6.3 million, per Netflix
Netflix CEO Reed Hastings
Ethan Miller | Getty Images

Analysts expect Netflix to post a big quarter after the bell on Monday, bolstered by subscriber growth ahead of Netflix's previously announced estimate of 6.3 million. The company's stock rose 2.5 percent in early trading Monday.

GBH Insights chief strategy officer and head of technology Daniel Ives believes Netflix's subscription addition estimate was low, and expects that price increases did not drive that many people away, while the movie "Bright" and new seasons of "The Crown" and "Stranger Things" kept users around.

Through surveys, GBH Insights believes net ads this quarter will approach 7 million.

"They were a little conservative on guidance on domestic given the price increase, but we didn't see any chinks in the armor," Ives said, adding that he expects the company to have a more profitable trajectory relative to the past two years.

Even at this stage of the game, it may not be too late to buy Netflix
Even at this stage of the game, it may not be too late to buy Netflix

Forrester principal analyst Jim Nail said the holidays tend to be a strong quarter for Netflix, leading him to believe it will post large subscriber ads this quarter than projected.

And while it is spending up to $8 billion on content this year, the large figure is a "necessary evil" to remain competitive against other services, Ives said.

"We're just continuing to see the cord cutting phenomenon going into Netflix's lap," he said.

There are some questions going forward about the negative impact of Disney removing its content from Netflix in 2019 and Disney's larger ownership stake in Hulu due to the Disney-Fox deal, Ives said, but he expects to see the impact more in the latter half of 2018.

"If [CEO Reed] Hastings wakes up at night with a nightmare, it's Iger and Disney," Ives said. "Going into this earnings it needs to be a beat and raise type of outlook. The stock has had a huge run. We still think it's in its fifth or sixth inning."

It's also questionable whether Netflix can sustain subscriber interest at the current pricing level, and Forrester's Nail expects more price increases to come.

While the company doesn't have to have a hit with each show because it's not dependent on advertising, it still has to have enough hits to ensure people will be willing to pay for the service each month.

"They redefine what is good and crap," Nail said. "Their business is no longer defined by, 'Does the show generate a big enough audience for advertisers?' What you and I may think is crap, somebody may watch it and like it. They'll see a $12 charge on their credit card bill, but will that show be enough to pay $12 for Netflix?"

Analysts expect Netflix to post EPS of 41 cents on revenue of $3.28 billion, according to Thomson Reuters.