7 Reasons Why The Street Likes The Netflix Q2 Beat

After a stellar Q2 earnings report, Netflix, Inc. NFLX shares traded 13 percent higher during Tuesday’s trading session. Baird analyst William Power took a deeper look into the earnings beat and ended up raising his price target on Netflix from $140 to $175.

“Netflix handily beat Q2 subscriber results with Q3 guidance also above estimates, driven by significant international upside and solid U.S. results. Driven by an impressive 2H'17 content lineup, we expect continued strong growth and are raising our estimates,” Power said.

7 Notable Highlights From Q2 Earnings Call

1. Netflix is performing extremely well internationally with net additions of 4.14 million smashing estimates (expectation was 2.6 million).
2. Netflix is seeing strong growth in the U.S., too. U.S. net additions were 1.07 million which exceeded the 600,000 estimate.
3. New original content and new seasons of "House of Cards" and "Orange is the New Black" likely helped drive upside.
4. Netflix’s financials were solid in Q2.
5. Q3 financial guidance was higher led by an increase in estimates for consolidated revenue and adjusted EPS. Additionally, management expects positive international contribution profit for the year.
6. Free cash flow was worse in Q2, but nobody really cared. Management also stated, “we expect to be FCF negative for many years."
7. Movie production could be another growth catalyst. “Netflix plans to launch 40 movies this year and is pushing for its movies to be launched simultaneously. If movie production continues to accelerate, that could steepen FCF losses, in addition to potentially disrupting the theater/movie industry,” Power said.

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