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Piper Just Raised Its Netflix Target By $127

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In a report published Tuesday, Piper Jaffray analysts maintained a Neutral rating on Netflix, Inc (NASDAQ: NFLX), while raising the price target from $360 to $487. The analysts expect the company to generate EPS growth of about 50% between 2016 and 2020.

"NFLX has been volatile and while we expect the trend to be "up and to the right," we also expect periodic pullbacks and would encourage investors to take advantage of entry points closer to $400," the analysts said.

Netflix is scheduled to report its Q1 results on April 15. The analysts expect the company to keep investors "focused on the near-term investment required for long-term positives from worldwide expansion."

The analysts expect Netflix to reach 865m broadband subs by 2020. By this year, Netflix could enjoy a US market share of 60 percent, up from the current 45 percent. The international market share could contract to 10 percent, from the current 14 percent.

"In addition to penetration of broadband subs, there are several other key variables involved in determining Netflix revenue and EPS growth, most notably pricing and contribution margin," Piper Jaffray noted.

The estimate for average EPS growth between 2016 and 2020 is at approximately 50 percent. "This growth would follow a year of EPS y/y decline in '15, the extent of which may be more significant than our current model, as the company pushes to complete its global expansion by end of '16," the analysts commented.

Netflix has indicated that it intends to focus in 2015 and 2016 on expanding worldwide. This could result in increased spend on content and marketing in new countries, resulting in its operating income declining y/y in FY15.

"In 2016, we expect the company to begin widely implementing its "skimming" strategy, which will be a less expensive way to enter new markets by leveraging existing content rights and doing less language localization; we expect this will allow international contribution margin to flip positive in 2017," the report added.

Latest Ratings for NFLX

DateFirmActionFromTo
Sep 2020KeyBancInitiates Coverage OnOverweight
Sep 2020Raymond JamesReinstatesMarket Perform
Sep 2020Truist SecuritiesMaintainsBuy

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