Netflix Is About to Kick Off Tech Earnings. There Are Lots of Questions

The outlook for Netflix's first-quarter earnings report, due after the close of trading on Tuesday, is a little muddled.

The company is still the clear leader in the streaming video market. But it is struggling to show meaningful growth given a weak economy, increasingly aggressive competition, and an apparently saturated U.S. market for streaming.

For the quarter, Netflix (ticker: NFLX) has projected revenue of $8.2 billion, up 4% from a year earlier. That compares to 2% growth in the December quarter, and 16% in the year-earlier period. Netflix is projecting profits of $2.82 a share, up from $1.33 a year ago.

The consensus view on Wall Street, as measured by FactSet, is that revenue will come in at $8.2 billion for a profit of $2.86 a share. Analysts expect the subscriber base grew by 2.26 million, boosting the total to 233 million.

Wall Street expects the company to pick up the pace in the June quarter: Consensus calls for revenue of $8.5 billion, up 8% from a year earlier, with profits of $3.07 a share and 3.7 million net subscriber additions.

This will be the first time Netflix will report results without having provided a specific forecast for subscriber growth, other than to say the net total should be positive. In another first, the earnings call this time around will be without founder Reed Hastings, who recently shifted into the role of executive chairman. Ted Sarandos and Greg Peters are now co-CEOs.

Netflix has a two-pronged strategy to boost growth. The company has unveiled a low-end ad-supported subscriber tier, and investors will be looking for Netflix to provide some content on how it has been received so far. Netflix has also promised to crack down on password sharing, but so far hasn't really taken any concrete steps in most markets.

On both fronts, it is too early to judge the long-term success. Meanwhile, there will be questions on the conference call about a recent move to cut prices in about 100 smaller markets in an apparent effort to boost subscriber demand. In the U.S. and Canada market, the company has lost roughly one million subscribers over the last four quarters combined, with the total settling in at a little under 75 million.

Wells Fargo analyst Steven Cahall contends that first-quarter results will be "less about quarterly results and more about the coming U.S. paid sharing implementation." He thinks extra member pricing will be higher than some investors expect, at about $8 a month. Cahall also contends the company is likely to comment bullishly about the outlook for incremental revenue growth from a crackdown. He keeps his Overweight rating and $400 target, and thinks EPS estimates could shoot higher if the company speaks bullishly on the outlook for a password sharing crackdown.

Citi analyst Jason Bazinet, who has a Buy rating and $400 target price on Netflix shares, cautions that the March quarter results could be "confusing," given the early stage of the ad strategy, the slower-than-expected rollout of new password sharing restrictions, and the price cuts in many minor markets. "We would encourage investors not to overreact" to the results and to "keep their eye on the prize." Bazinet's view is that the password crackdown won't boost revenue -- but that the ad tier can boost the subscriber base by 65 million, with average revenue above the traditional subscription model.

Piper analyst Thomas Champion, who has a Neutral rating and $325 target price on the stock, thinks "the setup looks mixed" for the first-quarter results. He thinks net subscriber adds will miss Wall Street estimates, and he says that the programming slate was weaker than in the fourth quarter. Writes Champion: "We continue to view Netflix as a story in transition."

Morgan Stanley analyst Thomas Swinburne, who has an Equal Weight rating and $350 target price on Netflix shares, says he sees both the paid sharing and ad-tier opportunities as "significant," but he thinks they are both already embedded in the company's share price. He also notes that the slower-than-expected rollout of a password crackdown could actually boost net subscriber adds in the March and June quarters.

Netflix shares are up about 17% this year.