Netflix Defies Bears Once More With Strong Q2, Solid Guidance

The Netflix, Inc. NFLX rally continued, with the company reporting second-quarter earnings. Though earnings were a penny shy of estimates, revenues eased past estimates and net subscriber additions beat even the wildest of expectations.

Commenting on the results, RBC Capital Markets analyst Mark Mahaney said the company continued to defy bear expectations with a strong quarter and solid guidance. The analyst noted that the GAAP earnings per share matched his expectations.

Related Link: Analysis: Why Netflix Remains 'Best Idea In The Media Industry'

Mahaney clarified that the second-quarter domestic net adds of 1.07 million beat the Street estimate of 630,000 and international net adds of 4.14 million were way ahead of the 2.59 million consensus estimate. The quarter saw the highest levels of domestic net adds since the second quarter of 2011.

RBC indicated the forward guidance of 750,000 domestic net adds and 3.65 million international net adds were also ahead of expectations.

Netflix said it expects its first-ever annual international contribution profit in 2017.

RBC's Take

The firm feels Netflix is underestimating the popularity of its content, leading to higher-than-expected user acquisitions globally. Attributing the bearish predisposition toward Netflix to saturation in the U.S. market, the firm said the company had defied expectations.

"On top of the Domestic success, International continues to exceed expectations and has now surpassed Domestic in terms of percentage of the total subscriber base, a gap that should widen over time," Mahaney noted. "And to add insult to injury, the company's International losses are turning to profits given success in early expansion markets."

Raising Estimates, Price Target

Consequently, RBC raised its 2017 revenue estimate by 2 percent to $11.5 billion, operating income by 5 percent to $788 million and GAAP earnings per share by 16 percent to $1.17. The firm also raised its 2018 revenue and earnings per share estimate by 2 percent and 3 percent, respectively.

RBC reiterated its Outperform rating on shares and bumped up its price target from $175 to $210. The firm believes Netflix is now set to add more subscribers in the U.S. and internationally in 2017 than in 2016, with execution continuing to improve.

At time of writing, shares of Netflix were soaring 13 percent at $183.27.