Netflix Color on Quarter
Shares of Netflix are trading up 1.30% at $205.30/share in pre-market trading
- Stifel raises their tgt to $235 from $230. Firm notes that Netflix topped consensus expectations with 5.3mm global subscriber additions in 3Q, driven by continued strength in both domestic and international markets. Guidance for 4Q came in slightly above expectations despite some perceived conservatism from management regarding potential churn from Netflix's recently announced price increase, particularly in the more mature U.S. market. They anticipate Netflix to deliver ~400bps of operating leverage next year as we expect subscriber growth/pricing increases to more than offset growth in content and marketing expenses.
- FBR raises their tgt to $207 from $172, reiterates Neutral. Firm notes that NFLX's 3Q17 earnings were mixed but, on balance, constructive (despite high expectations) as international upside ultimately, they believe, outweighs a domestic miss and FCF burn.
- RBC raises their tgt to $250 from $210, reiterates Outperform. Firm notes that Netflix posted very strong Q3 results, with Q3 Sub Adds/Q4 Sub guidance handily beating the Street, except for the U.S. Q4 outlook. They believe secular demand for Internet TV is ramping rapidly, and Netflix has positioned itself extremely well to benefit from this, with a compelling value proposition to consumers, based on price, selection, and functionality.
- Needham reiterates Hold. Firm notes that at current valuations, their worries about NFLX include: a) competition is driving higher cash losses in 2018, driven by $8B of content spending plus $4.5B of working capital (and $17B of content obligations), which works against valuation multiple compression; b) price increases may negatively impact sub growth/churn levels in 4Q17 & '18; c) EU quotas (supported by Spain, France, Germany & Italy) that SVOD & OTT platforms must have 30% of their catalog be European content (up from 20%) plus talk of adding marketing spending quotas in 2018; e) NFLX will make 80 feature films in 2018 (up from 8 in '17), suggesting falling ROIC's; f) higher marketing spending guidance for 2018 signals a shift from balance sheet growth to EBITDA and EPS compression; and g) original productions growing from 25% to 50% in 2020 adds risk.
- Pivotal raises their tgt to $270 from $200, reiterates Buy. Firm notes that overall, NFLX 3Q and 4Q guidance (which includes temp adverse effects from price increases) continues the strong subscriber trends from the last 4 quarters, as management has taken advantage of the drawing power of originals to generate strong subscriber growth (driven by higher gross and lower churn), while demonstrating pricing power, a very powerful combination. Post these results and the recently announced sooner/higher than anticipated price increase, we raised our ARPU growth expectations materially (including '22 U.S. streaming ARPU from $11.77 to $12.93 and international ARPU from $9.85 to $10.92) which helped drive our steady state EBITDA margin from 25->30%.
- Oppenheimer raises their tgt to $245 from $215, reiterates Hold. Firm notes that 4Q sub guide suggests future pricing cycles will be less painful than 2016. Strong International contribution margin guide was driven by broader than anticipated ASP increases. As a result, they're raising ‘18E International contribution profit by $391M, partially offset by 5% lower US profit on marketing/ content costs. Stepping back torrid top-line/sub growth only outpaced by profits (3Q Global Streaming Subs/Revenue +26%/+33% y/y vs. Contribution Profit +52% y/y). Everything moving in right direction now, but investor anxiety over 2018 cash burn and content competition looms if sub growth slows.