Here’s what every major analyst had to say about Netflix’s mixed earnings report
The shares dropped 3.9 percent, trading at $339.21, after making an attempt shortly after the opening bell to trade in the green.
Most major analysts remained mostly bullish on international growth just days after the streaming giant raised prices. Netflix said it add 8.8 million global paid memberships last quarter, 1.2 million more than estimated.
Several firms including Goldman Sachs, J.P. Morgan, Bank of America, UBS, and RBC raised their price targets. RBC analyst Mark Mahaney said the streaming company’s “long term thesis remains fully intact. … Netflix offers a truly compelling value proposition with global appeal.”
Here’s what the others think:
“Netflix 4Q subscriber results exceeded consensus expectations, as the quarter’s strong content slate, distribution partnerships, and outsized marketing drove 11.4mn total net adds globally (including trials), 3mn higher than the record 4Q17… The correlation between content spend and subscriber net adds was stable in the quarter at an R-squared of 0.93 (Exhibits 2, 3), though 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… As Netflix subscriber adds continue to exceed expectations and it approaches an inflection point in cash profitability, we believe shares of NFLX will continue to significantly outperform… We remain Buy rated (CL) and raise our 12-month price target to $450 from $420 to reflect faster subscriber growth, particularly in international markets.”
“Overall, we come away more positive from NFLX’s 4Q results… The underlying global secular shift toward on-demand entertainment remains strong, as does NFLX’s original content slate… Given better than expected 4Q subs & the impact of the US/LatAm price increase we now project slightly fewer net adds in 2019 than in 2018… But we believe the price increase could have less impact than expected, & NFLX could still grow net adds this year… Importantly, US revenue growth should accelerate from 1Q levels through ’19 & we project 28% NFLX revenue growth overall… We continue to believe NFLX is on track to have 200M global paid subs in 2021… We reiterate our Overweight rating & would be buying any weakness in shares… Our price target goes to $435 based on our sum-of-theparts analysis, with a 22x multiple on 2020E US streaming EBITDA of $3.1B, 13x multiple on 2019E Int’l streaming revenue of $10.7B, & 6x multiple on 2020E US DVD EBITDA of $120M.”
“Given strong net adds growth trends in 4Q and 1Q guidance for continuing subscriber growth with higher pricing, NFLX should alleviate most investor concerns around its growth trajectory… FCF burn and the possibility of pricing related churn hitting the 2Q domestic subscribers are a slight concern but ultimately we view int’l sub growth as the main driver of the stock; we reiterate our Buy rating, and raise our PO to $450 from $440 for faster penetration assumptions in our valuation model.”
“In analyzing NFLX’s Q4’18 EPS report, we point to some key narratives that should continue to drive stock performance (despite its strong YTD +32% start): 1) continued strong paid subs momentum in both US and int’l; 2) content success (now with some engagement disclosure) demonstrates how investing in content drives a “flywheel” of engagement, sub growth & new content creators looking to partner; & 3) 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… In addition, we see key investor debates around competition, margin/FCF evolution & runway for growth as better understood after NFLX’s marked under-performance in 2H18. Price target from $410 to $420.”
“Long term thesis remains fully intact…Netflix offers a truly compelling value proposition with global appeal… So compelling that Netflix is embarking on what is likely to be its 4 th successful price increase in the last five years… So global that Netflix now has 140MM global paid subs – with 80MM of those overseas – and its Paid Sub Adds are likely to increase for the 7 th consecutive year… GAAP Operating Margins are scaling rapidly and materially, and FCF will very likely inflect up in ’20… And Netflix still only accounts for perhaps 10% of all TV viewing hours in the U.S. This is growth defined, in our view. PT from $450 to $480.”
“We wonder (borrowing from Winston Churchill), whether this is the beginning of the end or the end of the beginning for NFLX. On 1/1/19 NFLX will lose most of its Disney content… This, coupled with NFLX’s meaningful price increase in the US, lowers the price/value ratio… Additionally, T and DIS have announced they will launch competing SVOD services by 4Q19, plus NBC in 2020, not to mention AMZN and AAPL’s new streaming services… NFLX was early and paid the highest customer acquisition cost to educate audiences about the value of OTT… We expect new entrants to target NFLX’s users directly because it is cheaper than converting a new household to OTT… We worry NFLX marketing costs will rise dramatically in FY20 and FY21 because T, DIS & NBC have free access to US TV audiences, whereas NFLX must pay for media.”
“International shines, but U.S. slightly weaker… Yesterday after the close NFLX reported strong overall Q4 results, headlined by stronger-than-forecast international paid net additions for Q4 and Q1 guidance. U.S. Q4 growth was right in line, with Q1 guidance slightly light, likely contributing to after-hours weakness given rising expectations into the print… We remain positive on the strong growth, but also view valuation as roughly fair, particularly against rising competition and ongoing free cash flow losses.”
This is a developing story. Check back for updates.