Netflix Q4: A Series Of Fortunate Events

Netflix, Inc. NFLX has started to reap benefits from its investments in original content, which helped the internet TV firm post better-than-expected fourth-quarter results and issue a solid guidance for the first quarter.

The deep slate of original content is helping to reduce churn, bring back old customers, while focus on local content is driving growth on the international side.

“With legacy Int'l markets now profitable, we see a path for material contribution profits in 2018. We like the moats that Netflix has built, and see potential upside to subscribers and profits going forward,” Mizuho Securities analyst Neil Doshi wrote in a note.

Rating And Justification

Doshi, who reiterated his Buy rating and raised the price target by $8 to $160, noted that revenue growth of 36 percent is the highest he has seen in four years, with domestic contribution margin of 38.2 percent being a record high.

The analyst sees a long runway for U.S. sub growth, driven by stronger content slate with sequels of "Orange is the New Black," "House of Cards," "Bloodline," "Stranger Things" and "The Crown."

“Netflix should achieve 40-percent-plus domestic contribution margin in 1Q, well ahead of its 40 percent in 2020 target,” Doshi highlighted.

On the international front, Doshi believes that Europe share gains will continue to drive strong Int'l sub growth and Int'l profitability. He raised his 2017 net sub adds to 13.0 million from 12.8 million.

A Look Ahead

Though the company expects 2017 FCF loss of ($2.0 billion), Doshi said 2017 could be the peak and expects losses to moderate in 2018. Doshi also raised his '18 GAAP EPS view to $2.13 from $2.05.

Shares of Netflix closed Wednesday’s trading at $133.26. They are set to open on a new 52-week high as shares gained more than 7 percent in the pre-market hours Thursday to $142.65.