Netflix Analysts See Subscriber Growth Offsetting Sales Miss
(Bloomberg) -- Netflix Inc. fell in early trading on Friday after it reported quarterly sales that came in below expectations. Despite that disappointment, analysts largely cheered the results, with more than 10 firms raising their price targets as they pointed to strength in global subscriber additions, which they said would help contribute to long-term outperformance.
According to Bloomberg data, the average price target for Netflix currently stands at $396, up from $384 on Thursday.
The stock slipped as much as 4.1 percent, though it had dropped more than 5 percent post-market Thursday, when the results were first released. Despite the dip, shares are up nearly 50 percent from a recent bottom in December, though they remain down about 18 percent from their record closing level.
Read more: Netflix’s Revenue Miss Puts Small Dent in Post-Christmas Rally
Here’s what analysts are saying:
Citi (Mark May)
International subscriber additions were “meaningfully above” expectations, while the weaker-than-expected revenue in the quarter “appears to largely be FX driven.”
May lifted his target on the company to $420 and affirmed his buy rating. In October, when May upgraded the stock to buy, he had a $375 target on Netflix.
Nomura Instinet (Mark Kelley)
“The quarter was fairly clean; management’s language on cash burn was consistent with prior commentary, indicating that investment in content is still top of mind.”
There was “broad-based geographic strength” in net subscriber additions, along with a “solid 4Q18 content slate.”
Lifts price target to $320 from $300, and boosts Ebitda forecasts for both 2019 and 2020. Keeps neutral rating.
Goldman Sachs (Heath Terry)
“Netflix has outperformed the best-fit-line in each of the last four quarters suggesting that the company is getting incremental leverage on its content investments.”
Because subscriber additions continue to exceed expectations and the company is approaching “an inflection point in cash profitability, we believe shares of NFLX will continue to significantly outperform.”
Raises price target to $450 from $420 “to reflect faster subscriber growth, particularly in international markets.” The firm maintained its buy rating and kept Netflix on its conviction list.
RBC Capital Markets (Mark Mahaney)
Global paid subscriber growth continues to accelerate, and the “pulling of pricing lever should be successful,” which “means accelerating revenue growth & operating margin expansion.”
Raises price target to $480 from $450, not far below the Street-high target of $500. Also raises 2019 and 2020 revenue expectations.
UBS (Eric Sheridan)
The success in Netflix’s content “demonstrates how investing in content drives a "flywheel" of engagement, sub growth & new content creators looking to partner.”
There is “potential for scale of revenue (driven by pricing & subs growth) against content investments to cause a positive inflection in FCF trendline in 2020 and beyond.”
Price target raised by $10 to $420; buy rating maintained.
BofAML (Nat Schindler)
The international subscriber additions show that Netflix “is far from peak int’l net additions.” This “should be the focus” of the results.
Keeps buy rating, boosts price target to $450 from $440.
Pivotal Research Group (Jeffrey Wlodarczak)
“NFLX clearly continues to voluntarily ramp their content spend amidst continued strong subscriber results (particularly internationally) believing (rightly in our view) that increased programming spend: 1) reduces churn, 2) increases the target market for NFLX service, 3) strengthens pricing power, and 4) creates an ever larger moat around NFLX’s business model.”
Raises price target from $480 to a new Street-high of $500.
Raymond James (Justin Patterson)
Raises price target to $470 from $450, reiterates strong buy rating.
“With revenue growth poised to accelerate, margin expansion in 2H19E, and FCF burn moderating in 2020E and beyond, we struggle to see the bear thesis.”
Canaccord Genuity (Michael Graham)
“We are strongly encouraged regarding our investment thesis, which revolves around a rapidly expanding catalog of original content driving continued strong subscriber growth.”
Lifts price target to $415 from $400.
Stifel (Scott Devitt)
“This was Netflix’s strongest quarter of subscriber growth to date as international sub growth momentum continued.”
Sees revenue growth accelerating above 30 percent in 2019. Price target lifted to $400 from $380.
©2019 Bloomberg L.P.