Reed Hastings is known for his cool demeanor but if there was ever a time the Netflix CEO may be chewing his fingernails, today is the day.
The mood is tense leading up to Netflix's first-quarter earnings report, scheduled for 1:05 p.m. PT today. The number of Wall Street analysts going bearish on Netflix appears to have risen in recent weeks. In early-morning trading, Netflix shares were down 3 percent, or more than $3, to $102.68.
Analysts expect the Web's top video-rental service to report a loss of 27 cents per share -- due in large part to the company's overseas expansion. But that's only part of the story.
Many investors, who have been on the stock's up-and-down ride over the past year, are likely to get spooked again if they see Netflix is straining to manage the higher costs of acquiring TV shows and movies. Some analysts are concerned that since costs to stock Netflix's Internet-streaming service with new content have risen, managers haven't been able to license enough shows and films to keep subscribers happy.
That's pivotal because that could lead to a downward spiral. Netflix needs to add subscriber revenue in order to keep up with those rising content-acquisition costs. If the number of subscribers decline, then there's less money to pay for new movies, which leads to even bigger subscriber losses. That's a dangerous cycle.
And this isn't the worst of it. Netflix couldn't renew a license with Starz, the premium cable channel for that company's supply of films from Disney and Sony Pictures. The deal ran out in February, the middle of the quarter. We likely won't see the full impact of the loss until the second quarter -- meaning the company's guidance for the second quarter will be closely scrutinized.
These fears about subscribers are legit. Let's not mince words: The streaming library is not what it once was. The selection is mostly a hash of documentaries, TV reruns and film titles that have done numerous laps around the broadcast and basic cable TV circuit.
The number of marquee film titles with any life left in them appears to be way down. At the same time, competitors are beginning to nip at Netflix's heels. Hulu and Amazon are building up their streaming libraries and Comcast during the quarter began offering subscribers Streampix, its own streaming-video service.
Keep in mind that some Wall Street experts predicted a doomsday scenario for Netflix's fourth quarter and the company sent the bears packing by topping analyst estimates. Can Hastings continue to defy the skeptics?