Netflix, Inc. (NASDAQ:NFLX) shares rose more than 5% Monday ahead of the company’s next earnings report. Analysts at MKM Partners remain positive on the company ahead of this evening’s report. They’re expecting that the streaming video giant will post another solid quarter.


Netflix’s key metric is subscribers

Analyst Rob Sanderson said the biggest story at Netflix, Inc. (NASDAQ:NFLX) right now is subscriber expansion. As a result, he suggests that net additions will continue to be the focal point of investors. He believes domestic subscribers have climbed toward the top of the company’s guidance of between 800,000 and 1.5 million.

He said he wouldn’t be surprised if international markets provided an upside for the company’s results, possibly exceeding the international subscriber guidance of 500,000 to 1 million. He also believes that right now Netflix’s subscriber loss in its DVD business is no longer important as long as contribution dollars don’t fall off “at an alarming rate.”

Expectations driving Netflix shares higher

Today’s surge in Netflix, Inc. (NASDAQ:NFLX) shares illustrates just a small part of how quickly they have increased in value. Sanderson doesn’t believe the company’s revaluation is because of near-term subscriber expectations. Instead, he thinks investors are more appreciative of the company’s opportunity for longer term penetration.

Nonetheless, he wouldn’t be surprised to see shares respond in a way similar to how they did with the company’s last quarterly report, which was solid but “relatively” in line with expectations. The company’s shares declined $20 over two days, which he said presented “an excellent buying opportunity.” Since then, shares of Netflix, Inc. (NASDAQ:NFLX) have increased 36%, compared to the NASDAQ’s increase of 8% over the same period.

The importance of cable partnerships for Netflix

According to Sanderson, cable companies are starting to see Netflix more as a programmer, which he believes it is. As a result, he doesn’t think they will have a problem distributing Netflix’s services in the same way they do USA, TNT, HBO or any other cable network.

He agrees with comments made by John Malone that cable companies will be able to regain “significant share of video” if they embrace OTT services. He notes that satellite competitors “have a severe disadvantage in broadband facilities.”

The analyst thinks this is the direction in which the industry is heading and that it will push investor views toward their bull case of 70 million to 90 million domestic subscribers in the next six to eight years. He believes that Netflix, Inc. (NASDAQ:NFLX)’s international opportunity “is at least as large.” He maintained his Buy rating and $370 per share price target on the company.