Jefferies Still Thinks Netflix Will Underperform, Sees A Stall In Growth Ahead

At a time when the market is cheering Netflix, Inc. NFLX's results, Jefferies maintains its Underperform rating, as it sees only a moderate growth ahead.

Netflix's Q3

The comments came after Netflix’ better-than-expected international subscription growth led to a strong third-quarter performance. Netflix reported solid total subscriber growth (3.57 million versus Jefferies’ 1.95 million estimate), with strength in both the U.S. and International segments.

In particular, driven by originals, international net adds came in at +3.2 million versus guidance of +2 million and third quarter 2015 figures of +2.74 million. Buoyed by results, shares surged $20 in the pre-market hours Tuesday to $119.32.

Related Link: Netflix Price Target Raised To $130 At Morgan Stanley Following $20 Climb

“However, we continue to believe that growth going forward could be more moderate than expected, especially given difficult comps against international launches in 4Q16 / 1Q17 — we maintain our UP rating, and think our thesis will play out over time,” analyst John Janedis wrote in a note.

In addition, management guided to a 7 percent decline in int'l net adds in the fourth quarter 2016 (+3.75 million versus Jefferies: +3.5 million), with growth likely impacted due to a comp against launches in Italy, Spain and Portugal in the fourth quarter of 2015.

Further, Netflix highlighted that there would be a difficult int'l net adds comp in the first quarter 2017, given the platform's launch in 130 int'l territories in January 2016. Janedis currently assume net int'l adds of 2.98 million for the quarter versus consensus of +3.7 million.

Guidance, Expectations

As the company is focusing more on originals, the analyst now expects a cash burn of $1.5 billion in 2017 versus prior estimate of $1.0 billion.

Following the completion of the un-grandfathering process in the fourth quarter, Netflix now expects ARPU growth of 12 percent (F/X) in the fourth quarter.

“We expect growth to moderate on a QoQ basis, as we do not anticipate additional price increases in the NT,” Janedis added.

However, to reflect the third-quarter performance, the analyst now projects fourth quarter revenue/EPS of $2.464 billion/$0.12 up from prior estimate of $2.393 billion/$0.10. Janedis also upped his F2016 revenue/EPS forecast to $8.818 billion/$0.40 from $8.704 billion/$0.28.

The analyst also raised his price target by $4 to $80 on the stock, which closed Monday’s trading at $99.80.

At last check, Netflix was up 18.14 percent at $117.90 in Tuesday's pre-market session.

Full ratings data available on Benzinga Pro.