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Netflix Stock Loses 4.3% Ahead of Earnings: Will Subscriber Growth Slow?

Shares of Netflix NFLX closed about 4.3% lower on Friday after analysts suggested the red-hot video streaming giant might soon run out of steam thanks to its stretched valuation. And with Netflix’s latest quarterly earnings report due out on Monday afternoon, some investors were willing to take profits and sit on the sidelines.

Netflix has largely been able to shake off market-wide volatility in 2018, with shares doubling en route to becoming one of Wall Street’s hottest tech stocks. Nevertheless, a few bearish analyst reports in recent days have questioned whether the hot streak can continue, and the stock looks poised to carry a rare downtrend into its report date.

Of course, the soon-to-be-reported quarter is all but guaranteed to have been one of immense profit and sales growth. According to our Zacks Consensus Estimates, analysts are expecting adjusted earnings of $0.80 per share and revenue of $3.94 billion, which would represent year-over-year improvements of 433% and 41%, respectively.

But we do not often see NFLX trade in response to its earnings and revenue growth—at least not just its earnings and revenue growth. In fact, as investors who have followed this stock for years know, the stock often responds to Netflix’s subscriber growth figures more so than anything else.

Last quarter, for example, Netflix added 7.4 million new members, topping its own guidance and analyst estimates for both international and domestic subscribers. The streaming platform closed Q1 with 125 million subscribers around the globe—up about 26.6% year over year.

Investors responded well to this subscription outperformance. Just two days after its Q1 report, Netflix shares were 7.8% higher than they were two days before the report.

For the soon-to-be-reported second quarter, Netflix said it expects to add 6.2 million new members, bringing its total to 131.2 million and marking a similar 26% surge from its prior-year quarter. Plus, here at Zacks, we can try to get a closer look at this performance through the use of our non-financial metrics estimate file.

The Zacks Consensus NFM file contains detailed estimate data for business segment metrics and non-financial metrics reported by companies. The data is acquired from digest and contributing broker models and includes the independent research of expert stock market analysts.

Interestingly enough, our NFM estimates are calling for Netflix to report 73.3 million international subscribers and 57.9 million domestic subscribers, bringing its total to—you guessed it—131.2 million.

It might seem like a no-brainer that analyst estimates are in line with Netflix’s own guidance, but this is not actually always the case, and the fact that analysts are not calling for Netflix to surge past its own public projection is perhaps more revelatory than one might think.

If analysts are unwilling to call a subscription surprise, it might be another sign that bullish sentiment is being replaced by hesitation as Wall Street attempts to call some sort of top on Netflix’s remarkable run.

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