Streaming video giant Netflix, Inc. NFLX reported its fourth-quarter results highlighted by an earnings beat and a slight revenue miss, while domestic and international subscriber additions came in better than expected. The company guided its first-quarter EPS and revenue to be 56 cents and $4.49 billion, respectively, versus expectations of 82 cents per share and $4.61 billion.
Here is a summary of how some of the Street's top analysts reacted to the print.
- Bank of America's Nat Schindler maintains a Buy rating on Netflix with a price target lifted from $440 to $450.
- Goldman Sachs' Heath Terry maintains at Buy (Conviction List), price target lifted from $420 to $450.
- Raymond James' Justin Patterson maintains at Strong Buy, price target lifted from $450 to $470.
- KeyBanc Capital Markets' Andy Hargreaves maintains at Sector Weight, no price target.
- Needham's Laura Martin maintains at Hold, no price target.
- Nomura's Mark Kelley maintains at Neutral, price target lifted from $300 to $320.
- Pivotal Research Group's Jeffrey Wlodarczak maintains at Buy, price target lifted from $480 to $500.
The stock traded at $346.76 per share Friday morning. Shares are up about 50 percent since Dec. 24.
Bank Of America: Focus On Guidance
Management guided first-quarter paid net adds to be 8.9 million, which came in 6 percent ahead of what the Street had already modeled, Schindler said in a research note. The key focus on management's guidance is expectations to add 7.3 million international subscribers in the first quarter, which is 15 percent above expectations.
The most impressive takeaway from the guidance is that operating margin should move from 9 percent at the start of 2019 and move above its 13 percent target this year and continue growing into 2020.
Netflix's revenue projection for the first quarter fell short of expectations, but could be due to a similar $180 million foreign exchange headwind that Street analyst's didn't fully incorporate in their models.
Goldman Sachs: Subscriber Correlation Trends
Netflix's earnings report demonstrated the correlation between content spend and subscriber net adds remained stable with an R-square of 0.93 (i.e., as content spend increases so does net adds), Terry said in a note. The strong correlation suggests the company will be able to show "considerable upside" to forward net adds growth as the company continues to invest heavily in content. This should help the company achieve cash flow profitability by 2022.
Raymond James: Incrementally Bullish
Netflix has three readouts that warrants an incrementally bullish stance on the stock, Patterson said in a note.
- The company ended 2018 with nearly twice as many subscribers it had in 2015 at 139 million with a clear pathway to 197 million.
- Management shared "substantially more viewership metrics," which makes it clear the company has a durable advantage its competitors can't duplicate.
- Management offered signs a long-term profit can be sustained, including operating margin ramp, decelerating marketing expense, and free cash flow burn improving after 2019.
KeyBanc: 'Excellent Growth' As Expected
Netflix's report showed "excellent growth" trends, but this was mostly inline with expectations, Hargreaves said. Despite expectations for continued growth, it's difficult to model notable upside to current expectations unless the trajectory of investment efficiency changes. As such, Netflix's stock continues to trade near a balanced risk-reward profile at current levels.
Needham: Beginning Of The End?
It's unclear if Netflix is in the "beginning of the end" stages of its growth cycle or "end of the beginning," Martin said. New entrants into the streaming space will likely directly target Netflix users because it would be cheaper to do so than converting a new household. Netflix paid a high cost to "educate audiences about the value" of streaming video and may be forced to pay even more in marketing through 2021.
Nomura: No Change To Story
Netflix's "fairly clean" quarter was accompanied with management's similar stance that investments in content is top priority, Kelley said.
Meanwhile, the competitive landscape in the streaming video space continues to ramp and it remains unclear what impact this will have on Netflix's pricing power and engagement trends. This will remain a longer-term question that won't be resolved in the next 12 months so a neutral stance on the stock is warranted as Netflix's stock is already trading at a premium valuation versus its peers
Pivotal: Netflix Is Strong
Wlodarczak said Netflix's continued focus on content spend is the right strategy moving forward because compelling content helps reduce churn, a diverse library of content attracts a higher target market, strengthens pricing power and generates a larger moat around the company's business model.
Loup Ventures: 5 Takeaways
Netflix's earnings report has five key takeaways, former research analyst Gene Munster and Loup Ventures' associate Van Sloun said in a blog post.
- First quarter EPS and revenue miss could be attributed to the Street "mis-modeling" the recent price increase.
- Management said domestic average selling price will "improve over the course of the year" and result in revenue growth for 2019.
- The cost to create each new episode of original content is rising.
- Management's comment that video game 'Fortnite' is a direct competitor was "unexpected."
- As Netflix continues to expand, the likelihood of any large upside to revenue and earnings "will diminish."
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