Netflix shares jumped Wednesday morning following an earnings report that showed the streaming company adding more subscribers than expected and generating more revenue than forecast.
Analysts also liked that Netflix execs were talking about resuming share buybacks as free cash flow turned positive.
In mid-day trading, Netflix stock was up 14% to $572 per share.
“Last quarter, we were confident FCF losses were over and expected investors to begin asking about potential FCF uses more," said Daniel Salmon of BMO Capital Markets. "We did not, however, anticipate that management would so quickly entertain those questions, as it did tonight in revealing it will resume share buybacks soon.”
“We've gone from a historical bear on Netflix to a card-carrying bull,” added Steven Cahall of Wells Fargo.
Cahall noted that the report indicated that Netflix’s customer lifetime value figures indicated better margins and cash returns going forward. And he noted that it would be difficult for smaller competitors to match its financial muscle.
“The company has proven that unit economics start to look attractive at 200 million plus subs," Cahall said.
“This creates a significant moat as we currently only foresee one other competitor nearby, Disney. This creates a sort of global duopoly and thus supports solid economics for the few companies that can achieve this level of subscribers and sustain such significant content spend,” Cahall said. “In other words, not only are we more bullish on Netflix but Netflix’s success makes us more bearish on unit economics for the smaller players in streaming.”
Salmon of BMO estimated that Netflix will be spending $18.2 billion in content and that spending will rise to $24 billion by 2030.
Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.
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