Despite price increases and trouble in Russia putting pressure on Netflix’s first-quarter subscriber count, Wells Fargo analyst Steven Cahall has raised his estimate for how many customers Netflix will add when it reports its vital statistics on Tuesday.
Based on data on downloads, monthly active users and daily active users, Cahall expects Netflix to add more than 2.9 million subscribers in the quarter, up from his previous estimate of 2.5 million. He said the number includes 1 million to 2 million deactivations in Russia. Without those, Netflix would have had net additions of 4.5 million subscribers for the quarter.
If Netflix meets Cahall’s expectations, it would have between 224 million and 225 million subscribers worldwide.
For the full year, Cahall sees Netflix adding between 15.3 million and 16.7 million subscribers.
When it reported its fourth-quarter earnings in January, Netflix’s guidance was that it would add 2.5 million subscribers. Since then, the Wall Street consensus is that Netflix will report 2.8 million new customers.
Cahall is recommending investors buy (overweight) Netflix stock and has set a target price of $600. Netflix closed at $341.13 on Friday.
Daniel Salmon of BMO Capital Markets, who also has a buy recommendation on Netflix stock, is less optimistic about Q1. Salmon sees Netflix reporting only 1.76 million net added subscribers, down from an earlier estimate of 2.48 million.
Salmon also slightly lowered his forecasts for Netflix revenue and operating income. He also lowered his target price for Netflix shares to $640 from $650.
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“We remain above consensus on [free cash flow] as we see continued optimization of content spending driving top-line growth, while the total rate of spending eases,” Salmon said in a note last week. “We are below sell-side consensus on paid net member additions near-term, but we think buy-side expectations are more muted, and that APAC could surprise owing to the mobile-first gaming strategy in this mobile-first viewing region.”
Though bullish about the first quarter, Cahall is less certain about Q2 and is eager to see what Netflix’s guidance will be.
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“We don’t feel as if we have a good handle on the Q2 outlook,” Cahall said in a note Sunday. “We don’t feel as if anyone else does either, so this is a Wait & See quarter with investors likely resetting afterwards rather than doing much into the print. In fact, we think many investors would like to see how H1 net adds actually come in.”
With the higher number of net adds in his model, Cahall also expects Netflix to report first-quarter earnings per share of $2.92, from $2.91. ■
