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Buy Netflix Amid Overdone, Myopic Concerns Related To Q2 U.S. Sub Growth, Analyst Says

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The fear around Netflix, Inc. (NASDAQ: NFLX)'s second quarter U.S. subscriber guidance is overdone and myopic relative to the company's global opportunity, according to Andy Hargreaves of Pacific Crest Securities.

"We recommend investors buy NFLX to take advantage of the passing of the near-term event and benefit from the perception of Netflix as a global business instead of a U.S.-centric one," Hargreaves wrote in a note.

The analyst, who has an Overweight rating and $140 target price on shares, said the U.S. concerns appear overstated compared to the global opportunity.

"Investors are currently embroiled in a heated debate over a few hundred thousand U.S. subscribers. In the meantime, Netflix's global expansion creates potential upside that is measured in the millions. As we move past the Q2 guidance, we expect the conversation to shift, which should refocus investors on the larger opportunity and be positive for NFLX," Hargreaves continued.

Related Link: 3 Things The Market Is Missing About Netflix

The analyst expects first quarter global net sub adds of 6.1 million, which is in line with company guidance. For the second quarter, the analyst sees U.S. net sub adds of 260,000, which is below the current sell-side estimate, but is likely in line with buy-side expectations.

"In both quarters, we see the potential for meaningful upside to consensus estimates for international subscribers, which could vastly outsize any potential downside in the United States," Hargreaves highlighted.

The analyst noted, "We are adjusting our estimates to anticipate a phased-in expiration of the grandfather period. Instead of a 30-day period, this drives our U.S. and international average revenue per user (ARPU) estimates lower, which drives our 2016 EPS estimate to $0.54 from $0.91 and our 2017 EPS estimate to $1.84 from $2.14."

Latest Ratings for NFLX

Jan 2019Goldman SachsMaintainsBuyBuy
Jan 2019Canaccord GenuityMaintainsBuyBuy
Jan 2019Bank of AmericaReiteratesBuyBuy

View More Analyst Ratings for NFLX
View the Latest Analyst Ratings

Posted-In: Andy Hargreaves Pacific CrestAnalyst Color Analyst Ratings


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