All algos that were short NFLX into earnings were just brutalized and stampeded into an epic short-covering squeeze when the company announced Q4 EPS of $1.35, nearly double the $0.72 expected. However, as usual, there is more here than meets the eye, epsecially when considering that NFLX Q4 revenue actually missed expectations of $1.49Bn, printing $1.48Bn. So how did NFLX smash EPS? Because as anyone who actually read the release before trading the stock would find, NFLX "Q4'14 Net Income/EPS includes a $39m / $0.63 benefit from a tax accrual release related to resolution of tax audit." Subtract that from the reported EPS and one gets $0.72. Right on top of expectations.
And then there is Q1 guidance, which NFLX said would be $0.60, not only lower than a year ago, but also substantially below expectations of $0.78.
[3]
So net-net: a quarter that was in line on the bottom line, a miss on the top line, and a business which may well be slowing down.
Finally, here what investors will soon be paying very close attention to: Free Cash Flow. At ($78) million, this was the worst quarter for the company in years.
[4]
And as a bonus: NFLX reported what its off-balance sheet streaming content obligations are. At $9.5 billion (yes, with a B), these are $600 million higher in just one quarter, up $2.2 billion from a year ago, and just under half of its entire market cap!
