Analyst Reactions To Netflix Earnings: Bears vs. Bulls

On Wednesday, Netflix NFLX released its fourth quarter results. The company reported an EPS of $0.79, above the consensus estimate of $0.65. Revenue of $1.175 billion beat the consensus estimate of $1.167 billion.

The bulls

JPMorgan: Strong quarter, strong outlook

Doug Anmuth, analyst at JPMorgan, said that the company's net additions should continue grow throughout 2014.

Anmuth wrote that the company's net addition of 2.33 million domestic streaming subscribers were 14 percent higher than a year ago and an acceleration of 10 percent growth in the third quarter.

Looking forward Anmuth believes that Netflix's guidance is conservative.

“Netflix expects 4Q's momentum to continue in 1Q and guided to 11 percent year over yaer growth in net adds, though we think this could prove conservative given the launch of season 2 of House of Cards along with the final 8 episodes of Breaking Bad, both coming in February.”

Shares are Overweight rated with a price target raised from $460 to a Street high $500.

FBN Securities: Raising price target

Shebly Seyrafi, analyst at FBN Securities said that Netflix issued a better than expected fourth quarter and a strong first quarter guidance which deserves a price target hike.

“A key part of our positive investment thesis as set forth in our recent initiation is that Netflix will succeed in reducing its international losses, which so far have camouflaged the strong profitability in the domestic business,” Seyrafi wrote in a research note to clients. “We are modeling International contribution profit moving to above break-even in FQ3 2015.”

Shares are Outperform rated with a price target increased to $475 from a previous $425.

The bears

Raymond James: Strong quarter, guidance below estimates

Aaron Kessler, analyst at Raymond James, said that Netflix offered investors a strong quarterly report and strong guidance.

In a research report, Kessler wrote that Netflix's addition of 2.3 million domestic streaming subscribers came in modestly ahead of the high end of guidance.

Looking forward, the company is projecting a first quarter 2014 EPS of $0.78, below the analysts previous estimate of $0.84 but above the consensus estimate of $0.78. The company also guided net income of $48 million, below the analysts' estimates of $53.6 million.

Kessler concluded his research note by stating “While we remain positive on the Netflix's fundamentals outlook, we maintain our Market Perform rating as we believe shares are largely pricing in the improved outlook at current levels.”

Shares are rated Market Perform without a price target.

Nomura: Positive on the company but shares valued appropriately

Anthony DiClemente, analyst at Nomura said that Netflix's business model is strong with subscriber additions in the fourth quarter and first quarter guidance above the analysts' expectations. However, DiClemente feels that the Street's expectation for fiscal 2015 may already be fully reflected in share prices today.

“The market expectation implies that Netflix is valued 60 percent to 70 percent greater than HBO, and the market (including us) value Netflix at >20x 2015E EV/EBITDA, which is double the valuation multiples of HBO and Showtime.”

Shares are Neutral rated with a price target of $360 to $375 a share.

Credit Suisse: Continued euphoria

Stephen Ju, analyst at Credit Suisse said that Netflix is on a path towards higher operating profit and free cash flow dollars over the long term as the company continues to build its infrastructure and expand internationally.

“Netflix continued to demonstrate domestic subscriber growth momentum as the 1Q14 guidance parameters imply higher ned adds versus last year. Similar positive dynamics as well as decreasing losses in its International operations have prompted the company to announce expansion into additional European markets in 2014,” Ju wrote in a note to clients. “This should exert some near-to-medium term pressure on profitability.”

Shares are Neutral rated with a price target increased to $349 from a previous $344.

Elsewhere on the Street

• Northland raised its price target from $325 to $375, maintains a Market Perform rating.
• Piper Jaffray raised its price target from $398 to $412, maintains a Neutral rating.
• Cowen raised its price target from $333 to $355, maintains a Market Perform rating.
• Cantor Fitzgerald raised its price target from $350 to $405, maintains a Hold rating.
• FBR Capital raised its price target from $350 to $356, maintains a Market Perform rating.
• Jefferies raised its price target from $215 to $250, maintains an Underperform rating.
• RBC Capital Markets raised its price target from $440 to $500, maintains an Outperform.
• Goldman Sachs raised its price target from $360 to $405, maintains a Neutral rating.