RBC Capital Markets analysts Mark S. Mahaney, Andre Sequin, Brian Peak and Kevin Potterton rate Netflix, Inc. (NASDAQ:NFLX) as Outperform as the video streaming giant gears up to announce its financial results for the fourth quarter on Wednesday, January 22nd.

Netflix

Netflix earnings expectations

Analysts at RBC are looking for $1.16B in revenue and $0.64 in GAAP EPS. Our revenue and GAAP EPS estimates are essentially inline with consensus at $1.17B and $0.65, respectively. Note that our and Street estimates are also generally consistent with Netflix, Inc. (NASDAQ:NFLX) guidance – and our GAAP EPS estimate is in the upper half of guidance. We would also expect Q1 guidance to bracket consensus, but like previous quarters – the extent of the new international market launches could be an EPS wildcard.

Netflix intra-quarter data points

1) Mixed to positive comScore US Web traffic trends – Q4 US desktop unique visitors grew 6% Y/Y, flat vs. 6% Y/Y growth seen in Q3, on a 3pt easier comp. Total US pages viewed grew 22% Y/Y in Q4, vs. 9% Y/Y growth in Q3, on a 3pt tougher comp. 2) Proprietary US Netflix Survey – As part of our December 12, 2013 Netflix UTLT report, we e-ran our proprietary US Internet user survey in order to analyze Netflix’s current consumer value proposition.

Key factors to focus on

In addition to the Q4 revenue and EPS results – as well as the Q1 guide – we believe the following are key factors to focus on: 1) Subscription metrics and trends – We are estimating 2.05MM net new US streaming subs, a loss of 300,000 DVD subs, and 1.4MM net new international streaming subs. 2) Domestic streaming contribution margins – We are looking for a 23.0% segment contribution margin (70bps sequential contraction, though a 450bps Y/Y expansion), which implies 55% Y/Y growth in Netflix, Inc. (NASDAQ:NFLX)’s Q4 domestic streaming contribution profit. 3) International (lack of) profitability – We anticipate international contribution losses of $62MM, down modestly from a $74MM loss in Q3, and down from peak segment contribution loss of $105MM in Q4/12 – as the segment scales over the long term.

Netflix valuation

Our price target of $440 is based on a sum-of-the-parts methodology on our 2015 estimates. We use a 35x P/E multiple on our domestic streaming non-GAAP EPS, an 8x multiple on our domestic DVD non-GAAP EPS, and a 5x P/S multiple on our international streaming revenue. We believe that these multiples are commensurate with the segments’ relative growth rates. Despite the significant appreciation of Netflix, Inc. (NASDAQ:NFLX) shares in 2013, we can still point to four potential future catalysts: 1) evidence of pricing power/ARPU expansion; 2) cable distribution deals; 3) international market(s) profitability; and 4) more successful original offerings. Netflix remains on track to become an Internet video utility…