Here's How Wall Street Is Reacting to Netflix's Blowout Quarter

(Bloomberg) -- Another big subscriber beat for Netflix Inc. should put to rest any concerns about the company’s growth trajectory, according to GBH Insights. Margins also improved, suggesting to Morgan Stanley that the company’s cash burn may be peaking as operating leverage increases. Several analysts boosted their price targets on the stock, adding fuel to a rally that has already made for the year’s top performer in the S&P 500 Index. The shares rose as much as 7.2 percent, their biggest gain since the last blowout earnings report.

Here’s what analysts are saying about Netflix’s results:

Morgan Stanley, Benjamin Swinburne

“We continue to believe Netflix will scale to a large and highly profitable business, and 1Q results highlight continued momentum on both scale and margins.”

“In a rare combination, subscriber growth exceeded expectations AND expectations for margin expansion for the year increased. Importantly, as the company pivots its incremental spending from content first towards marketing, there are some early signs that operating leverage is increasing and cash burn perhaps peaking.”

Price target raised to $370 from $350; reiterates overweight rating

Bernstein, Todd Juenger

“Netflix once again demonstrated a higher pace of sub growth than expected, while also raising price ... we view this as a thesis-confirming result.”

“Probably the most popular Bear thesis on NFLX (other than "valuation") is some version of: "International is going to be more expensive for Netflix than the market realizes.” With these results, “it seems increasingly evident that non-English Netflix content can have meaningful value everywhere in the world, including the U.S.”

“With ‘regulation’ becoming the biggest issue facing "FANG" stocks, Netflix may be emerging as the ‘cleanest’ investment story in FANG.”

Price target raised to $372 from $340; outperform rating

Goldman Sachs, Heath P. Terry

“We continue to believe that market expectations for subscriber growth and profitability both in 2018 and beyond remain too low and expect that as forecasts increase the stock will continue to outperform.”

Price target raised to $390 from $360; buy rating

Bank of America Merrill Lynch, Nat Schindler

“Netflix reports strong beat on both US & international subscribers, accelerating revenue growth and margin improvement.”

“Strong execution and favorable secular trends provide runway for continued growth.”

“We expect marketing to be back half loaded given management commentary around content releases in the 2H18 and marketing efforts to augment content discovery.”

Price target raised to $347 from $300; buy rating

Wells Fargo, Ken Sena

Netflix Chief Executive Officer Reed Hastings, on the topic of recent regulatory concerns for the tech sector, “offered that he felt comfortably shielded from the heightened scrutiny we are seeing within the space. In particular, he noted that NFLX is substantially different from other companies given that it does not sell advertising and spends a very low % of its cost structure on technology (better-categorizing NFLX as a media company as a result).”

Price target raised to $370 from $345, outperform rating

Pivotal Research Group, Jeffrey Wlodarczak

“1Q result continues the strong subscriber trends from the last 6 quarters” and “importantly NFLX is doing it spending less than anticipated.”

“The larger their subscriber base grows (and their ARPU increases) the more they can spend on original content, which increases the potential target market for their service (and reduces existing subscriber churn + increases the ability to take future price increases) and dramatically increases barriers to entry.”

“As NFLX gains scale, we expect further price increases, while also still substantial increases in subscriber totals, and eventually a rapid expansion in NFLX profitability”

Price target raised to Street-high $420, from $400; buy rating

GBH Insights, Daniel Ives

First-quarter subscriber performance “shows the company’s aggressive international expansion strategy is bearing fruit and putting major fuel in the company’s growth engine for the rest of 2018 and beyond.”

“Netflix has a number of growth levers which should fuel the company’s next phase of strategic penetration among both U.S. and especially international consumers.”

Wedbush, Michael Pachter

“Our competitors appear to believe that the company will deliver leverage from its content spending as it grows its revenue base. We disagree, given that the vast majority of Netflix’s content (including the bulk of its “originals”) is licensed; so long as that is true, Netflix’s content spend is likely to grow in lock step with its revenue growth.”

“In order to generate profits at a level suggested by its share price, Netflix will have to grow dramatically and raise prices significantly. Until we see evidence that it can successfully deliver positive free cash flow, we advise investors to seek more compelling investment opportunities.”

Price target raised to $125 from $110; underperform rating

--With assistance from Jeran Wittenstein

To contact the reporter on this story: Catherine Larkin in Chicago at clarkin4@bloomberg.net.

To contact the editors responsible for this story: Chris Nagi at chrisnagi@bloomberg.net, Catherine Larkin, Steven Fromm

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