Credit Suisse Contradicts Netflix Guidance, Raises Price Target

Although Netflix, Inc. NFLX witnessed higher-than-expected churn in 2Q, gross adds remain stable, Credit Suisse’s Stephen Ju said in a report. He maintained a Neutral rating on the company, while raising the price target from $119 to $122.

Netflix reported its 2Q16 revenue at $2.11b, marginally below the Credit Suisse estimate of $2.13b, and EPS at $0.09, beating the estimate of $0.06.

Guidance Conservative

Netflix guided to lower-than-expected 3Q16 sub growth for Int'l, citing “un-grandfathering in the US, as well as larger International markets, and the upcoming Olympics,” analyst Stephen Ju mentioned. He noted, however, that the company continues to witness in-line gross adds, which suggests that demand for Netflix's services remains solid.

Once Netflix crosses the period of elevated churn due to price hikes, normalized net add growth should resume, Ju stated. He added that due to these reasons, the estimates for Int'l growth for 2017 and beyond have not been changed, contrary to the guidance. “This compounded with lower-than-expected content costs drive our price target modestly higher.”

Estimate Changes

The revenue and adj. EPS estimates for FY16 have been reduced from $9.04 billion to $8.88 billion and from $0.59 to $0.51, respectively.

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