Mark Your Calendar: Netflix, Inc. Earnings

Netflix (NASDAQ: NFLX) just announced that its second-quarter earnings call will be after market close on Monday, July 16. The internet entertainment company has a high bar to live up to. In Netflix’s first quarter, the company crushed expectations, thanks to record member additions and accelerating revenue growth.

But investors have high expectations for Netflix’s second quarter not just because of the company’s strong performance recently, but also because management guided for its growth to accelerate yet again during the period. In addition, investors’ wildly optimistic outlook for the company is evident by Netflix’s sharp gain in its stock price lately; shares are up 157% in the past 12 months and 21% in the past month.

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Ahead of Netflix’s second-quarter earnings release next week, here’s an early preview of what investors should expect from the media giant.

Look for accelerating revenue growth

Netflix’s revenue has been surging recently. In the company’s first quarter of 2018, revenue jumped 40.4% year over year — a significant acceleration from 32.6% year-over-year revenue growth in the company’s fourth quarter of 2017. Further, even Netflix’s fourth-quarter revenue growth was an acceleration from 30.3% year-over-year growth in the third quarter of 2017.

Management is guiding for second-quarter revenue to rise 41.2% year over year.

Look for strong growth in international subscribers

The bulk of Netflix’s revenue growth is expected to come from its international streaming segment, which management expects to add $778 million to its top line compared to the year-ago quarter. For comparison, Netflix expects its U.S. streaming revenue to increase by $393 million. Further, this marks the first time Netflix has guided for more total international streaming revenue than total U.S. streaming revenue.

This sharp revenue growth internationally is being driven primarily by meaningful growth in subscribers abroad. Netflix guided for 68.7 million paid international subscribers, up 41% from 48.7 million international subscribers in the year-ago quarter.

Look for a double-digit operating margin

One of the reasons investors have been so bullish on Netflix recently is likely the company’s rapidly improving profitability. For instance, going into Netflix’s first quarter of 2018, management was forecasting an operating margin for the full year of 10% — up 300 basis points year over year. But now it is looking like the company can surpass this already-strong outlook. In Netflix’s first quarter, the company posted an operating margin of 12% and raised its outlook for its full-year operating margin to be between 10% and 11%.

Even this higher outlook, however, could prove conservative. Though management asserts that heavier content and marketing spend in the second half of the year will put its operating margin to this level, continued momentum could force management to lift its operating margin outlook for the full year again. More specifically, if Netflix’s revenue growth continues to surpass management’s guidance, the company’s operating margin will likely benefit.

For its second quarter, Netflix expects its operating margin to be 12%. But investors may also want to look to see if the internet entertainment company raises its outlook for its full-year operating margin again.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.

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