House Of Calls: Analysts React To Stellar Quarter From Netflix

Netflix, Inc. NFLX continues to hold the significant gains it experienced after-hours Wednesday after reporting a remarkable fourth quarter in which it saw the most subscriber adds in a quarter in company history.

Netflix stock also hit a new all-time high.

Netflix's fourth quarter saw over 7 million subscriber adds, with the bulk coming internationally, boosting confidence that the future of the company's growth will undoubtedly come overseas. The company continues to burn through cash in favor of opting for original content, and it appears to be paying off, as giants Time Warner Inc TWX's HBO and Amazon.com, Inc AMZN all battle to redefine the next generation of televised content.

Wall Street Weighs In On 4Q

Baird

“While constructive on the strong subscriber gains and industry leading position, we also view risk/reward as fair in light of rising content costs, competitive risks and continued FCF losses.”

Baird maintains a Neutral rating on Netflix after raising its price target to $138, up from $120.

BMO Capital Markets

BMO has indicated that they remain on the sidelines partly due to the global launch of Amazon Prime Video at a ~20 percent lower cost, but noted that Netflix’s fourth-quarter results “are a good reminder that IP-delivered TV is still in its infancy, there is room for multiple winners, and global rollouts like Prime’s help bring attention to all OTT services.”

BMO maintains a Market Perform rating on Netflix, and raised its price target to $150 from $115.

Brean Capital

“We project NFLX will be spending $15 billion per year on content in five years and $25 billion annually in ten years. It has the largest global subscriber base allowing it to provide premiere content at the lowest cost per subscriber. It has minimal distribution costs and as NFLX self produces more content it eliminates the studio's margin thereby maximizing the economic profit in the content cycle between production and retail monetization.”

Analysts expects Netflix to have 230 million global subscribers by 2025, generating $15 ARPU, and still growing at nearly a 20 percent CAGR.

Brean maintains a Buy rating and raised its price target to $150 from $145.

Credit Suisse

“For the longer term, Netflix will be looking to show a greater balance between growth and profitability – which to us validates the long-term investment thesis for its international and newer cohorts to follow along the margin expansion trajectory of the US.”

Credit Suisse raised its price target to $143 from $133 and maintains a Neutral rating on Netflix.

Jefferies

Jefferies is one of the few investment banks with a more bearish outlook on Netflix, with concerns about its expected cash burn to generate more original content. Jefferies expects Netflix to issue debt in Q2 to finance its investment in content. Netflix has $1.5 billion in cash on hand versus an expected $2 billion cash burn in 2017.

Jefferies maintains its bearish stance with an Underperform rating, but raised its price target to a $95 up from $80.

Mizuho

“[W]e like the setup for 2017 and beyond. We're seeing the benefits from a deep original content slate that is helping to moderate churn, bring back old customers, and drive solid growth on the International side. With legacy Int'l markets now profitable, we see a path for material contribution profits in 2018.”

Mizuho reiterated its Buy rating on Netflix and raised its price target to $160 from $152.

RBC Capital

“Long thesis remains in tact. Stronger even. Thesis being Dramatic Secular Shift away from Linear TV (1 billion pay TV subs today) to Internet TV (perhaps 125 million subscribers today) these numbers could swap places,” said RBC.

RBC maintains an Outperform rating on Netflix and raised its price target to $175 from $150.

Wedbush

“We continue to believe that Netflix is overvalued. We have been consistently wrong about this stock, as we have always believed that valuation fundamentals dictate that companies be valued based upon the discounted present value of their future cash flows. It is likely that we will be wrong for a while longer, as there is more quality content than ever before and Netflix has certainly had its share of hits.”

Wedbush remains the most bearish investment bank on Netflix, maintaining a Underperform rating, while raising its price target to $68 from $60.