Some Analysts Still Eyeing Long-Term Concerns For Netflix Despite Its Impressive Q3

Netflix, Inc. NFLX reported its Q3 results broadly ahead of expectations, driven by international upside. “Though upcoming new content and easier comps. in 2017 could drive further near-term momentum, growing competition and content costs remain long-term concerns,” Baird’s William V. Power commented in a report.

Analyst Power maintained a Neutral rating on the company, while raising the price target from $94 to $120.

US Solid, International Upside

Netflix reported US net adds of 370,000, ahead of Baird’s estimate of 300,000. US revenue came in at $1.3 billion, in-line with expectations, backed by marginally higher margins. The company reported 3.2 million international subscriber adds, significantly higher than Baird’s estimate of 2.0 million. International revenue and margin also beat expectations.
 

Concerns Remain

Netflix reported a FCF loss of $506.4 million, substantially higher than Baird’s projection of $238.1 million and the $254.1 million deficit recorded in Q2.

“The company expects a similar loss in Q4, implying a roughly $1.5 billion loss for 2016. NFLX plans to issue additional debt in the coming weeks to fund content, with 1,000 hours of original content planned in 2017 vs. 600 in 2016,” Power wrote.

The analyst also expressed concern regarding intensifying competition from direct competitors like Amazon.com, Inc. AMZN and Hulu, traditional cable and satellite video providers, and emerging initiatives like TV Everywhere.

“The international markets have lower broadband penetration rates, lower credit usage, and lower TV ARPUs, all of which could hamper Netflix’s growth in those markets. International expansion has also been a drag on overall cash flow and profitability,” Power added.

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