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William Blair Predicts Netflix Shares Will Hit $660 By 2024

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William Blair Predicts Netflix Shares Will Hit $660 By 2024
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In the wake of Netflix, Inc. (NASDAQ: NFLX) shares retreating on the streaming service's second-quarter results, which revealed a miss on subscriber numbers and a Q3 subscriber count shortfall, William Blair reviewed the prospects for the company in the second half of 2018. 

The Analyst

Analyst Ralph Schackart has an Outperform rating for the shares of Netflix.

The Thesis

Street estimates point to a mere 7-percent increase in Netflix's international net adds in the second half of 2018, as opposed to the four-year average increase of 43 percent, Schackart said in a Tuesday note. (See the analyst's track record here.) 

The analyst forecast at least 10-percent upside, basing his estimate on "the library advantage internationally, history of recovery following lumpiness in business and a solid originals slate."

The company is increasing its number of foreign originals from 10 in the third quarter of 2017 to 19 in the third quarter of 2018  while also increasing the number of sequels, Schackart said. The healthy Q3 slate featuring in-country originals could lead to a strong quarter, he said. 

Comparing Netflix's total library size to OTT peers in 15 countries, Schackart said the company's catalog is compelling. Although Amazon.com, Inc. (NASDAQ: AMZN)'s library continues to grow, the analyst said it still trails Netflix in most regions.

William Blair expects an international subscriber count of 130 million for Netflix in 2020, above the consensus of 123.5 million. The international segment should reach 42-percent penetration by 2025, below the 60 percent the company achieved 16 years after its domestic launch, Schackart said. 

William Blair's 2025 EPS valuation framework implies 20-percent upside in the next 12 months and a $660 share price by 2024.

The Price Action

Notwithstanding the 18-percent drop since the company reported Q2 results after the close July 16, Netflix shares are still up about 71 percent year-to-date.

The stock was trading up 3.32 percent to $338.60 at the time of publication Tuesday. 

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