A Few Thoughts On Netflix Leading Into The Q3 Print

If you break from your “Narcos” binge and peel away from that ever-expanding Netflix, Inc. NFLX queue, Stifel Nicolaus saidyou’ll find yourself on an increasingly crowded couch.

Analysts estimate a 753,000 domestic and 3.65 million international swell in Netflix subscribers this quarter. If correct, the “healthy” trend would drive continued revenue growth and extend an impressive second-quarter gain of 5.2 million subscribers — a sum exceeding forecasts by 2 million.

“We estimate 30-percent year-over-year revenue growth in 3Q (in-line with guidance of 29.6 percent) as Netflix continues to benefit from last year’s price increase,” analyst Scott Devitt said in a Thursday note, anticipating operating margins of 6.8 percent. (See Devitt's track record here.)

Fourth Quarter Foresight

Netflix will again hike prices on premium subscription packages in November. The marginal raise will compound fourth-quarter user growth, justifying a 3-percent increase in Stifel’s quarterly revenue estimates.

“We expect the current price increase to be much less disruptive than last year,” Devitt said.

Combined with quarterly subscriber growth of 1.6 million domestic and 5 million international, the new round of price increases should drive operating leverage, according to Stifel. The research firm raised its 2018 average revenue per paying user, or ARPPU, growth estimates from 5 percent to 10 percent year-over-year.

Upcoming Catalysts

Reflective of the price increases, Stifel reiterated its Buy on Netflix and increased its target from $200 to $230. Netflix will report its third-quarter results Monday after market close, and management will follow the release with a 6 p.m. video interview.

Stifel will adjust expectations based on Netflix's plans for 2018 content spending. The streaming service recently reported a budget of $7 billion, which would drive year-over-year growth in the low teens against 2017 estimates of 31 percent.

At the time of publication, Netflix was trading at $194.95.

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Photo courtesy of Netflix.