Fly Intel: What to watch in Netflix earnings report

Netflix (NFLX) is scheduled to report results of its third fiscal quarter after the market close on October 16, with a conference call scheduled for 6:00 pm ET. What to watch: 1. SUBSCRIBER SIGNALS: Netflix's subscriber numbers are a closely-watched measure of the company's growth trajectory. Last quarter, the company reported streaming net additions of 5.15M members, including second quarter U.S. additions of 670,000 and international additions of 4.47M members. For Q3, Netflix has forecast streaming net additions of 5.0M members, including U.S. streaming net additions of 650,000 and international streaming net additions of 4.35M. 2. ANALYSTS SPLIT FOLLOWING LAST REPORT: On the day after the company missed its subscriber addition projections for the first time in five quarters with its Q2 report, Deutsche Bank analyst Bryan Kraft downgraded Netflix to Hold as he believed that the "slowdown in growth" required a "re-evaluation of value." Meanwhile, both BMO Capital and Stifel upgraded the stock at that time to Buy-equivalent ratings as they saw the post-earnings weakness in the shares as a buying opportunity. In late August, SunTrust analyst Matthew Thornton upgraded Netflix to Buy from Hold while lowering his price target to $410 from $415, saying the pullback after the Q2 subscriber miss was driven in part by the interest in World Cup viewing. The analyst stated that his Q3 domestic and international Tracker through July suggested subscription gains that were "solidly in line or ahead" of expectations. More recently, on October 12, Citi analyst Mark May upgraded Netflix to Buy from Neutral with an unchanged price target of $375, stating that the valuation following the recent selloff had reached a level that warrants an "opportunistic" upgrade. Netflix has a highly recurring subscription-based revenue business that delivers "significant value" to consumers, and its management team has a strong track record of execution, the analyst contends. 3. STREET TARGETS TRIMMED AHEAD OF REPORT: Yesterday, Goldman Sachs analyst Heath Terry lowered his price target for Netflix to $430 from $470 to reflect the contraction in broader internet multiples. While third party data has most investors anticipating net subscriber additions beyond management's July guidance, the analyst believes that has been balanced by expectations for more conservative Q4 guidance. Terry thinks upside to consensus expectations and what the strength in subscriber net additions says about Netflix's business, beyond just guidance for the next quarter, is likely to be a positive catalyst for the stock and kept a Buy rating on the shares. This morning, Morgan Stanley analyst Benjamin Swinburne reiterated his Overweight rating on Netflix, though he trimmed his price target to $450 from $480 to account for foreign exchange impacts, higher rates and higher marketing spending. His Q3 subscriber expectations are in line with guidance for the addition of 650,000 members in the U.S. and 4.35M internationally, Swinburne noted. For Q4, he forecasts 1.8M U.S. net adds and 5.75M internationally.