Morgan Stanley Encouraged By Netflix's Ability To Grow Subscribers With Original Programming

Netflix, Inc. NFLX shares plunged 9 percent in premarket trade on April 19. Morgan Stanley’s Benjamin Swinburne maintained an Overweight rating for the company, while reducing the price target from $160 to $125. The analyst mentioned that the recent pullback in shares offered an opportunity “for those taking a longer view.”

Although Netflix reported a healthy performance for 1Q16, both in the US and abroad, the company announced disappointing 2Q international guidance. Analyst Benjamin Swinburne said, however, that Netflix is likely to witness a ramp in 3Q net adds.

Domestic Net Adds

The company’s US net adds beat expectations, with gross adds likely to have increased y/y. The beat came in “thanks to the benefit of key original content.” Swinburne commented.

“The fact that new original programming across a broad spectrum (Fuller House, Making a Murderer) drove new member growth ahead of Netflix's own expectations gives us confidence in its ability to continue to grow in a highly competitive market already at nearly 50% broadband penetration,” the analyst wrote.

International Net Adds

Netflix achieved higher-than-expected international net adds of 4.51mm for 1Q. This positive was overshadowed, however, by the company’s 2Q guidance of 2mm net adds.