Netflix, Inc. (NASDAQ:NFLX) has recently announced robust first-quarter results and provided a positive outlook.
Netflix, Inc. (NFLX) 52-Week High
On Monday, its stock reached a new 52-week high of $229.69.
In today’s equity research report published by RBC Capital Markets, it assigned ‘outperform’ rating to Netflix, Inc. (NASDAQ:NFLX) and eyes a price target of $250.
Justifying the rationale, RBC believes that Netflix, Inc. (NASDAQ:NFLX) has achieved a level of sustainable scale, growth and profitability that is not currently reflected in its stock price. RBC estimates Netflix has 30 million U.S. subscribers and 7 million international subscribers. This catapults Netflix into one of the largest global entertainment subscription businesses.
Mark S. Mahaney and his team consider Netflix to be one of the best derivatives of strong growth in online video viewing and in Internet-connected devices such as tablets, smartphones, Internet TVs.
The equity research report also indicates Netflix, Inc. (NASDAQ:NFLX)’s presence is gradually improving in the U.K. with significant churning of subscribers.
The report also highlights that based on several scenarios and assumptions they conclude that Netflix, Inc. (NASDAQ:NFLX) can generate $10.00+ in EPS in its Domestic Streaming segment within 3-5 years. Justifying its view, RBC believes that within 3-5 years, Netflix will be sustaining 40MM+ Domestic Streaming subs at a $9.00 ARPU with 25 percent operating margins.
RBC feels with the fairly significant slate of new content offerings emanating later this year, the overall attractiveness of Netflix would substantially improve.
The report also observes that the number of user ratings for House of Cards has increased over 200 percent since RBC began tracking user ratings in mid-February. This compares with a 7 percent rise in Mad Men and a 10 percent increase in Breaking Bad user ratings. Hence RBC finds the early results for HOC encouraging and it will continue to track them over time. However it believes that Netflix, Inc. (NASDAQ:NFLX) has proven ability to successfully generate original content.
Justifying its rationale for the target price of $250, RBC believes that a sum-of-the-parts (SOP) approach would be the most relevant to value Netflix. Providing the break-up, it considers $158 per share for Netflix Domestic Streaming Segment, while its Domestic DVD segment has been valued at $21 per share. By valuing Netflix, Inc. (NASDAQ:NFLX)’s International Steaming Segment at $64 per share, RBC eyes a target price of $250 as the sum of these three segments.
Cautioning on the possible downside scenario, RBC considers lower than anticipated subscriber growth and higher marketing spend could pull the price to $190.
