Netflix's Focus On Original Content Is Paying Off

Doug Mitchelson of UBS maintains a Neutral rating on Netflix's stock but boosted his price target from $92 to $119 following the earnings report. The analyst noted that Monday's earnings report marked the first time since the second quarter of 2015 that net subscriber additions were ahead of expectations both domestically and internationally.

Related Link: Netflix Shares Skyrocket On Strong Results, Guidance; Added 5.2 Million Subscribers Globally In Q3

Netflix added 368,000 new subscribers in the United States, which exceeded expectations by more than 50,000, while the company attracted 3.2 million net additions internationally, which was 1.2 million more than expected. In addition, revenue, EBITDA and earnings per share also came ahead of what the analyst was expecting.

Mitchelson acknowledged that investors may have missed a nice opportunity to enter Netflix's stock, as Netflix's original content ramp and expected growth are playing out much faster than expected.

However, the analyst isn't ready to declare the stock a Buy at this point, as the next two quarters feature a tough international comparison. Moreover, Netflix's content ramp will continue but its impact will be less pronounced in the fourth quarter compared to the third quarter.

Amazon.com, Inc. AMZN Prime's international launch adds to the already existing competition concerns.

Bottom line, Mitchelson's price target was boosted to $119 based on his revised forecast, which now assumes a nine percent subscriber growth through 2020, adding 23 percent to EBITDA due to operating leverage.

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