Netflix, Inc. (NASDAQ:NFLX) Stock: A Good Buy Ahead Of Earnings

Netflix, Inc. (NASDAQ:NFLX)

Netflix, Inc. ’s stock appears to be a good buy before the firm releases its Q1 results, said analyst Andy Hargreaves at Pacific Crest on Monday. In the note, Hargreaves noted that investor’s concern over Netflix’s US subscriber growth is “overdone and myopic relative to the company’s global opportunity.” The analyst reiterated his ‘overweight’ rating on the stock and gave a price target of 140.

Netflix Inc (NASDAQ:NFLX)

International subscriber miss – biggest threat to Netflix stock

After the market close on April 18, Netflix will report its Q1 results. In the previous two quarters, the firm missed the US subscriber goals, but exceeded the targets it set for international subscribers. For the Q1, the Wall Street expects Netflix to add 1.82 million US streaming subscribers and 4.17 million international subscribers.

Earlier this year, Netflix guided to 1.75 million U.S. subscribers and 4.35 million international subscribers. For Q2, the Wall Street expects the firm to add 690,000 domestic subscribers and 2.83 million international subscribers.

“In both quarters, we see the potential for meaningful upside to consensus estimates for international subscribers, which could vastly outsize any potential downside in the United States. Investors are currently embroiled in a heated debate over a few hundred thousand U.S. subscribers. In the meantime, Netflix’s global expansion creates potential upside that is measured in the millions,” the analyst notes.

Netflix, Inc.  stock has dropped 7.6% year to date while the S&P 500 has gained 1.4%. The biggest risk facing Netflix shares is international subscriber miss. Such a scenario would raise questions on the firms biggest growth opportunity, said Hargreaves. Netflix competes with Amazon, Hulu and other players in the streaming video market.

Hargreaves expects Netflix’s second-quarter outlook for US net subscriber additions will be about 260,000. This figure is below the current consensus analyst projections, but Hargreaves believes that international subscriber additions could “meaningfully” beat forecasts.

Better than watching TV

Separately, Atlantic Equities analyst – Hamilton Faber – in a report on April 1, revised the rating of Netflix from ‘Neutral’ to ‘Overweight,’ and also raised the price target from $115 to $160 per share. Faber referred the firm’s service as ‘the TV sweet spot,’ saying it is a structurally better way to watch TV.

Faber noted that Netflix’s video streams do not include ads, and the firm allows its subscribers to binge-watch shows from its ever increasing library. Last year, Netflix, Inc. added 17 million global subscribers, higher than 13 million additions it made in the previous year. Faber expects 21 million new subscribers will be added this year.

A rise of 12% was noted in the average viewing per subscriber last year, and at the same time, Netflix’s share of US primetime broadband traffic has grown from 35% to 37%, the analyst notes. Faber noted that the management has indicated plans of spending 40% more on content this year, and that the firm has become the biggest non-sports content buyer in the world.

Netflix’s platform offers a good value to its customers, and its average per-hour viewing is just 14 cents, or 25% of the price paid by viewers for traditional pay-TV in the US. And, at the same time, its free of any kind of ads unlike traditional pay-TV, says Faber.

As a result of this, Faber believes that opportunities exist for the firm in the pricing area. But, investors will have a close watch on the price increase of 14% to 25% for over half of subscribers in the US during the second and third quarters. However, Faber feels the impact or the churn rate will be minimum.

In pre-market today, Netflix shares were down over 1%, and at 9.40 am, the shares were up 0.30% at $104.66. In the last one-year, the shares have gained over 76%.

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    Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.

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