Netflix is expected to announce that it added another 1.48 million subscribers as it releases its first quarter earnings after the market closes Monday.
The Wall Street consensus is that the streaming giant will finish close to its guidance on subscriber growth, earnings and revenue.
Many on Wall Street see streaming as the future—as opposed to legacy, linear TV—and Netflix is the biggest of the streaming video players both in the U.S. and globally. With recent price increases, Netflix has shown that subscribers are willing to pay more for what they’re streaming, while traditional pay TV customers appear to be cutting the cord.
“We think Netflix is increasingly attractive relative to other mega-cap internet stocks as regulators/politicians focus on the uses of consumer data more. Those Netflix certainly leverages user data, we expect it will get much less attention than open communication platforms and social media,” said Daniel Salmon, analyst at BMO Capital Markets, who raised his target price for Netflix shares to $310 from $250.
“Shares of Netflix have traded up 15% since the company reported Q4 earnings (following a 10% jump on the print), vs. the S&P 500 down 8% over the same time frame. We believe that this intra-quarter share price movement is indicative of positive expectations going into the print,” notes Mark Mahaney, analyst at RBC Capital Markets.
“Netflix’s U.S. streaming subscriber base continues to expand, the company will benefit from scale against a largely step-fixed content cost basic, Mahaney says.
Mahaney is forecasting sub adds to be 1.45 million which is close to what the company predicted when it gave guidance last quarter but slight below the Wall Street average of 1.48 million.”
Mahaney sees earnings coming in at 62 cents a share and revenues hitting $3.69 billion, both in line with Wall Street opinion and Netflix’s own guidance.
But Mahaney warns that Wall Street may be overestimating how many subs Netflix will add in the second quarter because of weak seasonality and tough comparisons.
Despite that, Mahaney sees Netflix’s second quarter revenue at $3.9 billion, slightly exceeding the Wall Street consensus, with earnings of 65 cents a share, on par with the street view.
In the longer term, Mahaney forecasts that Netflix’s earning could be anywhere from $14 to $22 per share by 2022, which would make the stock worth $250 to $660 a share.
BMO’s Salmon said that content spending will be a top focus at Netflix. He says the company expects to spend up to $12 billion in cash in 2018, concentrating on bigger titles that drive word of mouth, international series with global appeal and 80 planned flims.
In his report Monday, Salmon laid out questions he’d ask Netflix management:
1. Have your recent partnerships with Altice, Cox, Sky, etc. driven meaningful subscriber growth? Have they helped drive penetration with different demographics (e.g., older users)?
2. With a full quarter after your 4Q17 price increase, has the dynamic/distribution of existing customers between your price levels changed? How about new sign-ups levels at the various subscription packages?
3. Do you have internal ROIC metrics for individual pieces of content?
4. What do the changes at Cannes and your response mean for direction of your film business asyou continue to expand the number of original film productions?
5. With your ever-growing catalogue of programming, what are some of the ways you are aiming to help improve program discovery beyond better targeting on the NFLX homepage?
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