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Wall Street Gets Even More Bullish on Netflix 

Wall Street Gets Even More Bullish on Netflix 

(Bloomberg) -- Netflix Inc.’s monster subscriber growth in the stay-at-home era has prompted Wall Street analysts to boost their price targets following the streaming company’s first quarter results. But not all is positive.

The Los Gatos, California-based company has warned investors that some of the virus-induced growth may be temporary and cautioned that a stronger dollar could reduce the value of its sales abroad. Content production could also soon take a toll on next year’s slate, it said.

While shares initially rallied in extended trading Tuesday, the stock has since slipped 2.1% as of 12:06 p.m. in New York, bringing its year-to-date gain to 31%.

The advanced warning poured cold water on Raymond James’s bullish view, spurring a downgrade to outperform from strong buy as “potential for positive estimate revisions and multiple expansion are limited until we observe post-Covid-19 retention rates.” The firm’s analyst Justin Patterson now poses the question of if the company is “too hot to handle.”

New user growth of almost 16 million customers last period was aided by binge watching across the platform’s most popular programs, including the startling true crime series “Tiger King.” The customer growth generally prompted positive commentary among the largest brokers on Wall Street. But despite the “staggering growth,” Loup Ventures analyst Gene Munster said “unfortunately, the truth is people want to spend less time at home.”

The company announced on Tuesday it is also planning to take advantage of low borrowing costs in the junk-bond market and borrow another $1 billion between dollars and euros. The proceeds will be used to fund content acquisitions and show productions. It could also provide more flexibility, analysts said.

Wall Street Gets Even More Bullish on Netflix 

Here’s a summary of what analysts had to say.

Goldman Sachs, Heath P. Terry

Buy, price target $540 from $490

Management’s assertion that outperformance was a function of subscribers being pulled forward and that net adds in the second half will fall is likely to prove overly conservative.

The company will continue to benefit from word of mouth customer acquisition and growth in lower cost mobile only plans, as well as a significantly easier competitive environment.

Wells Fargo, Steven Cahall

Equal-weight from underweight, price target $460 from $305

Report demonstrates the unique value of Netflix in these even more unique times. “As long as hand sanitizer is sold out, NFLX should outperform, and execution is outstanding.”

Prior bearish view was on valuation with concerns around long-term cash generation, “but frankly such long-term views are a bull market luxury.”

Few businesses are growing right now, but Netflix is adding subscribers at a break-neck pace.

Raymond James, Justin Patterson

Outperform from strong buy, price target $480 from $415

Netflix is a long-term winner in direct-to-consumer video, however, “we believe potential for positive estimate revisions and multiple expansion are limited until we observe post-Covid-19 retention rates.”

Positively, the first quarter “was tracking above expectations before Covid-19. The U.S. and Canada (UCAN) returned to ‘pre-Disney+ launch’ levels and would have accounted for upside vs. prior guidance.”

Bernstein, Todd Juenger

Outperform, price target $504 from $487

“Nobody knows how much is pull-forward versus incremental, but pull-forward itself is meaningfully [net present value] positive.”

“Subscriber growth was driven more by gross adds than reduced churn” and contrary to belief, U.S. and Canada is not saturated.

Evercore, Lee Horowitz

In line, price target $375 from $350

“The key question from here: to what extent should 1H20 trends change perception of terminal value/earnings power?”

“As good as 1H trends appear to be for the company in the midst of the coronavirus pandemic, a slightly more cautious tone was indicated for the back half of the year, as some Covid-related pull-forward begins to bleed off and as tougher content compares potentially weigh on 2H growth.”

“This lumpy full-year view likely leaves momentum- oriented investors wondering how much more upside remains from here.”

©2020 Bloomberg L.P.