Bob Peck: Netflix Worth $110 Sum-Of-Parts, But Be Cautious Of International Subscriber Numbers

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  • Netflix, Inc. NFLX have surged 131.37 percent year to date, from a low of $45.55 on January 12.
  • Robert S. Peck of SunTrust Robinson Humphrey has maintained a Neutral rating on the company, while raising the price target from $95 to $110.
  • Although domestic subscriber growth is expected to be below the guidance for 3Q15, Peck expects Netflix’s forward revenues to be supported by increased pricing.

Analyst Robert Peck explained that while Netflix might miss the domestic subscriber guidance, the company saw significantly higher net adds in 3Q15, as compared to prior 3Qs, while trial members were meaningfully lower than in prior 3Qs.

Peck also stated that SunTrust’s “proprietary analysis of the popularity of new content does not seem to justify the guidance.”

On the other hand, international net adds during the quarter were in-line with prior 3Qs, while trial members were comparable to 2Q. SunTrust’s proprietary checks point to continued strength in Latin America, while Peck believes that Japan could be a wildcard.

“Looking to 4Q, incremental broadband households are slightly smaller than the cohort launched 4Q last year,” Peck stated.

According to the SunTrust report, the company is likely to raise capital once more in 1Q, along with a potential equity raise. “Grandfathered pricing from the 2Q14/4Q15 price increases will expire 2Q16/4Q16 and could cause an uptick in churn,” the report added.

The 2015 and 2016 revenue and EBITDA estimates have been raised to reflect “flow-through of price increases partly offset by lower Domestic paid members.”

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Posted In: Analyst ColorPrice TargetAnalyst RatingsRobert S. PeckSunTrust Robinson Humphrey
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