Netflix Color on Quarter (227.58)
- Stifel raises their NFLX tgt to $283 from $235, reiterates Buy. Firm notes that Netflix handily topped expectations in 4Q with a record 8.33mm quarterly subscriber additions globally vs. consensus of 6.39mm, driven by broad-based outperformance across the globe. Guidance for 1Q:18 was also positive, as Netflix expects 6.35mm global subscriber additions vs. Street expectations for 5.01mm. After seeing strong returns on both its content portfolio and marketing campaigns supporting it, Netflix now expects to spend $7.5B-$8.0B on content and $2.0B on marketing in 2018, leading to expected negative FCF of $3.0B-$4.0B this year. Despite the company's big investment plans, Netflix expects to deliver ~300bps of operating leverage in 2018 and eventually anticipates content investments to begin to slow
- Needham reiterates Hold. Firm notes that NFLX financials were in line with their estimate at revs of $3.29B (up 33% y/y), and EPS of $0.41 (up 173% y/y). They expect NFLX to open higher owing to strong subscriber over-delivery despite a price increase in the US and Europe. Although NFLX focused on content as a key driver of sub growth, in the US they believe that widespread press about DIS buying assets from FOXA based on the strategic rational of launching a directto-consumer (DTC) entertainment service in 2019 aided OTT awareness and helped legitimize OTT as a viewing alternative for older viewers. NFLX's CEO projected strong consumer adoption of DIS's competitive DTC entertainment service. They believe that MVPD adoption by Cox and Verizon in the US (and Deutsche Telekom offshore) helped drive NFLX's 4Q17 sub growth, but at a lower ASP than average.
- Pivotal Research Group raises their NFLX tgt to $300 from $270, reiterates Buy. Firm notes that driven by the launch of new content + the benefit of increasing traditional distribution channels (cable and telcos) + increasing availability of broadband + a decision to significantly ramp marketing in 4Q, Netflix reported much better than expected 4Q domestic (+1.98M [+2% y/y despite a sizeable intra-quarter price increase]] vs. their and consensus +1.25M) and international (+6.4M [+24%] vs. their and consensus 5.0M) net new subscriber results. U.S. contribution margin was in-line at $561M (+5% y/y), while international contribution margin was better than expected at $135M vs. our $127M ($117M). EBITDA grew +48% to $313M materially below their $395M forecast on the much better than expected subscriber growth, while free cash flow was moderately better than expected [(-$524M) vs. their (-$624M) (content spend timing)]. Overall, NFLX 4Q result (which included temp adverse effects from price increases) and 1Q guidance continues the strong subscriber trends from the last 5 quarters, as management has taken advantage of the drawing power of originals to generate strong subscriber growth (enhanced by integration into existing distributors offering reducing churn substantially), while demonstrating yet again the ability to take price, a very powerful combination.
- B. Riley FBR, Inc. raises their NFLX tgt to $243 from $211, reiterates Neutral. In their preview from Friday 1/19, they had flagged their unique Google Trends checks of content and Netflix searches that suggested global streaming sub growth in 4Q17 could come in better than guidance and match or top the record sub growth of 4Q16. That's exactly what happened, speaking to strength of brand, execution, and content this quarter. But the guide for 1Q18, though better than consensus, suggests a slight easing of this torrid growth entering 2018. With the stock up 28% so far in 2018 (including a post-close 9% rise Monday 1/22 after earnings), versus the S&P 500 up approximately 6% over the same period, they admire the company, but retain their Neutral rating. Netflix's momentum is clearly impressive, and cautionary for traditional TV companies trying to pivot and catch up.
- Goldman raises their tgt to a street-high of $315 from $250; reiterates Buy.
- JP Morgan raises their tgt to $285 from $242.
Shares of Netflix are trading up 10.5% at $251.37/share in pre-market trade.