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UBS: Netflix Is Chill

UBS Securities is encouraged by what it believes is strong upside in Netflix’s Q4 subscriber guidance, adding that a recent price increase should have no impact on growth, according to a new research report.

According to a Jan.17 report conducted by its Evidence Lab, which provides UBS analysts with rigorous primary research, UBS estimated that year-over-year subscriber improvements at the SVOD pioneer were sustained through the fourth quarter, and that an October price increase appears to have had little effect on momentum. UBS estimated that Q4 domestic subscribers should reach 54.04 million (up 1.27 million) and international customers will reach 61.54 million (up 5.06 million), basically in line with management forecasts. Its 12-month price target on the stock -- $250 per share, a 30% premium to its $191.96 closing price on Dec. 29 – reflects that optimism.

Netflix is expected to release fourth quarter results officially on Jan. 22.

“We believe Netflix's core competencies in both content and technology will drive a virtuous circle of greater subs and increased viewing time, enabling higher ARPU and revenue, which will fuel content spending to attract even more subscribers, positioning Netflix to sustain its clear global leadership in the emerging online video subscription business,” UBS wrote in the report.

When Netflix announced in October that it would raise monthly rates for its standard service to $10.99 from $9.99 and for its premium tier to $13.99 from $11.99, some analysts feared it would lead to some subscriber erosion. But in a November consumer survey of about 2,000 people, the UBS evidence lab showed no signs of materially increased churn.  

Netflix had some of its strongest domestic and international subscriber growth ever in the third quarter, adding 5.3 million customers globally, far outpacing guidance of 4.4 million additions. The company predicted it would add about 6.3 million customers globally, 1.25 million in the U.S. and 5.05 million internationally.  

The emergence of additional OTT players also has had little impact on Netflix, according to the UBS survey, which reported a strong uptick in household penetration (50%) from its April survey (42%) and no discernible change with respect to the competitive landscape.

UBS also was encouraged by a strong content slate, adding that in 2017, season two of sci-fi hit Stranger Things had stronger Google search interest than HBO’s  Game of Thrones. Newer series like Ozark and Mindhunter attracted as much search interest as established series like House of Cards and Narcos. In 2018, a reboot of Bravo’s Queer Eye, dark comedy Maniac and a western anthogogy from the Coen Brothers -- The Ballad of Buster Scruggs – are all expected to attract attention.