Netflix is scheduled to release its next earnings report on Wednesday after closing bell, and the company’s stock has become one of the most polarizing on all of Wall Street. Netflix earned another price target increase on Friday, this time from Morgan Stanley. This latest increase follows another increase from Raymond James last week and a pair of bearish reports from Societe Generale and Citi.
What to expect in Netflix’s earnings report
Analysts are pushing out their updated estimates for Netflix’s second quarter earnings report. Consensus estimates suggest revenue of $1.65 billion and earnings of 4 cents per share. You may notice that the earnings number is quite low. The reason for this is because it takes into account the 7-for-1 stock split, which goes into effect on the day of earnings.
Most analysts are expecting Netflix to report on a split-adjusted basis. If the company does not report on a split-adjusted basis, then that would put earnings at around 28 cents per share, according to estimates.
Good data points for Netflix
It’s pretty easy to see why most analysts are so bullish on Netflix. RBC Capital Markets analysts Mark Mahaney, Rohit Kulkarni and their team highlighted several bits of data that were very positive for Netflix during the June quarter.
For one thing, comScore reported strong traffic trends for Netflix in the U.S. The firm reported a 32% year over year growth rate in the streaming company’s second quarter average monthly multi-platform unique visitors.
Surveys: Netflix subscribers are happy
Also RBC’s own proprietary survey indicated suggests an “attractive value proposition” for the company. They discovered that half of respondents watch movies and TV shows on Netflix, which was the top online video site in the U.S. YouTube was in second place at 44%, while Hulu was in a distant third place at 24%. Amazon is slipping and fell to 23%.
Also 72% of Netflix subscribers describe themselves as either “extremely” or “very” satisfied, which is the highest percentage since they started tracking and a significant increase from 58% just two years ago. Churn rates also appear to be at record lows with about 73% of subscribers say they are “not at all likely” to cancel their Netflix subscriptions.
Further, the RBC team reports that surveys in Germany and France indicate that the company is gaining a solid foothold in Europe as subscribership in both countries is climbing. Subscribers in the two countries also appear to be quite happy with Netflix.
Morgan Stanley ups price target for Netflix
Analysts Benjamin Swinburne and Thomas Yeh of Morgan Stanley reiterated their Overweight rating on Netflix and raised their price target to $750 per share. Their new bull case suggests the company’s stock could climb as high as an obscene $940 per share.
They estimate that U.S. subscribers are paying about 13 cents per viewed hour, which is a decline from 21 cents in 2013 and 35 cents for pay-TV. Assuming the cost per hour stays at 13 cents in the long term, the Morgan Stanley team expects Netflix to raise its monthly subscriber cost to about $14 by 2025. Also by that year, they expect usage to increase from about two hours per date to 3.5 hours per day, which they add could be conservative.
The main reason for their price target increase is their expectations for the company to increase its prices.
What else to look for in Netflix’s earnings report
In addition to the basic numbers, investors will also be looking for the latest information on subscribership and trends. The RBC team estimates 600,000 net new streaming subscribers in the U.S. and 1.9 million net new international streaming subscribers.
They also want to see contribution margins for the U.S. to be at 32%, a 30 basis point increase sequentially and 490 basis point increase year over year. They expect Netflix’s international segment to continue losing money, contributing $101 million in losses for the quarter, an increase from the first quarter loss of $65 million.
