Three Analysts With Three Different Investment Ratings Analyze Netflix's Q2

Netflix, Inc. NFLX reported its second quarter results after Wednesday's trading session. Here is what some of Wall Street's top analysts are saying. Morgan Stanley: Long-Term Profit Visibility ‘Improving' Benjamin Swinburne of Morgan Stanley commented in a note that the trends surrounding content distribution are "playing into Netflix's strength." The trends include: 1) a consumer shift towards on-demand, ad-free video, 2) broadband and mobile distribution, and 3) acquiring content for global release. Swinburne also noted that as each quarter passes, the "barriers" to compete against Netflix grows. The company's second quarter print (and third quarter guidance) merely reinforce that view. Looking forward, the analyst suggested that "it is clear" momentum will continue with international net additions expectations showing "continued solid growth." The analyst also added that the long-term profit outlook is encouraging as the company's spending expectations for 2016 contains no surprises while a steady and solid average revenue per user growth across regions is expected to continue. Bottom line, Netflix's investments in content, distribution, marketing and its user interface are "paying off" in member growth and operating leverage. Shares remain Overweight rated with a price target raised to $125 from a previous $107.14. SunTrust: Profit, Free Cash Flow Outlook ‘More Tepid' Robert (Bob) Peck of SunTrust Robinson Humphrey commented in a note that while subscriber additions were "handily" above consensus estimates, free cash flow fell short of expectations and the company's commentary around out-year cash flow and international profitability was "more cautious." Peck also noted that Netflix's international losses are now expected to bottom in 2016 rather than 2015 while management would not endorse profitability in 2017. The analyst added that cash content spend is expected to continue running at approximately 1.3x content spend on the P&L for the near term. Finally, customer acquisition cost increased at an "accelerating rate" for the fourth consecutive quarter in the U.S. and international markets. Shares remain Neutral rated with a price target raised to $95 from a previous $90. Wedbush: Stock Price Is A ‘Mystery' Michael Pachter of Wedbush commented in a note that investors continue overlooking Netflix's cash burn (negative $229 million in the quarter) while its net income was "only" $26 million. Pachter stated that Netflix's $40 billion enterprise value is "difficult to reconcile" on an earnings multiple or cash flow multiple basis, especially when considering the company is expected to continue burning cash at an "increased rate" over the next six quarters. The analyst continued that investors are valuing Netflix by "taking the leap of faith" that when it reaches a much larger size, the company can boost its monthly subscription fee without losing many subscribers while the incremental revenue will "drop largely" to the bottom line. Moreover, investors are valuing international subscribers will be as valuable as domestic subscribers (Pachter disagrees) and that the aggregate international growth will generate consistent profitability (Pachter also disagrees). Bottom line, Pachter is "not ready to throw in the towel" just yet but is skeptical Netflix's "originals" strategy will achieve a critical mass sufficient to drive "meaningful" profitability. Also, the analyst is expecting content costs to continue rising and "meaningful" competition in 2016 and beyond. Shares remain Underperform rated with an unchanged $40 price target.