Netflix may be the hottest stock today in light of last night’s strong earnings report. Shares surged by as much as 17.6% to $559 per share during regular trading hours, and analysts at pretty much every firm under the sun are weighing in. To say we’ve been inundated with analyst reports on Netflix today would be an understatement.
Baird raises Netflix price target
Among the analysts who upped their price targets were Baird analysts William Power and Steven Beckert. They reiterated their Outperform rating but significantly raised their price target from $50 to $610 per share.
Netflix reported 2.62 million U.S. paid net adds during the March quarter, beating the consensus estimate of 2.08 million. The Baird team increased their net addition estimates for this year, bumping up their paid U.S. adds from 4.7 million to 5.4 million and their international adds from 7.9 million to 9.1 million. The company also beat contribution estimates, reporting 31.7% compared to the consensus estimate of 30.2%.
Baird analysts also trimmed their earnings per share estimate for this year from $1.41 to $1.13 per share, bringing their estimate even further below consensus. The reason for this is because Netflix’s free cash flow burn is greater than previously expected due to the international ramp and content costs.
RBC ups Netflix target
Analysts Mark Mahaney and Rohit Kulkarni and their team at RBC Capital Markets also increased their price target for Netflix, although theirs was less dramatic. Their target moves from $550 to $600 per share, and they maintained their Outperform rating on the stock.
They note that Netflix’s revenue of $1.57 billion was in line with the consensus estimate even though the company was dealing with major currency headwinds. GAAP earnings per share of 77 cants excluding losses from foreign exchange rates were also ahead of estimates.
The RBC team thinks Netflix’s original content drove the better-than-expected net subscriber adds during the quarter. They also say consumer interest in video streaming has surged, adding further upside to the company’s results and subscriber additions.
They also point out that the first quarter U.S. net adds and guidance for second quarter adds suggest that this year’s subscriber adds could be in line with or maybe even greater than last year’s. As a result, they said we may still not be “near the end of the S-Curve.”
Netflix’s strong domestic streaming margins are also indicative of the company’s “material Content Cost leverage,” according to the RBC team. They add that the U.S. contribution margins will have doubled within three years, hitting at least 30% this year and demonstrating Netflix’s pricing power domestically. They also see further upside potential for margins.
The RBC analysts increased their revenue estimate for 2016 from $8.06 billion to $8.35 billion but slashed their GAAP earnings per share estimate from $5.10 to 80 cents per share because of the acceleration in the international expansion. They also say they’re even more bullish on Netflix now.
JPMorgan raises target
Analyst Dough Anmuth and his team at JPMorgan also significantly raised their target for Netflix, pushing it from $509 up to $625 per share. They said last night’s earnings report solidifies the company’s long term story, and they reiterated their Overweight rating on the stock.
They particularly liked how Netflix’s original content and improvements to its service are boosting subscriber additions. Management said on the earnings call that their original content is beginning to garner more hours per dollar spent on producing them than the company’s other content.
Over time, they also said original content could make up half of Netflix’s total content expenses. Currently original content is less than 15% to 20% of content expenses. Because recent ratings for regular TV have been weaker, the JPMorgan team doesn’t think the company is seeing more licensing pushback from content creators.
In addition to noting the subscriber adds beat, they also liked the surprise in churn, which was lower than expected. They added that engagement has reached a new high, with 10 billion hours streamed in the first quarter, amounting to 1.7 hours per subscriber each day.
Other bulls raise Netflix price targets
Analyst Heath Terry and team at Goldman Sachs are also bullish on Netflix, maintaining their Buy rating and upping their price target from $510 to $620 per share. Cantor Fitzgerald analyst Youssef Squali and team increased their price target on the company from $500 to $580 per share based on “accelerating momentum.”
Citi analyst Mark May and his team also maintained their Buy rating on Netflix and bumped up their price target for the stock. Their new target is $584, up from $525 previously. They think last night’s earnings report shows just how disruptive Netflix is to consumer video viewing habits and a sign of the company’s “long-term growth narrative.”
Also bullish are Pacific Crest analysts Andy Hargreaves and Evan Wingren, who maintained their Overweight rating and raised their price target from $500 to $665 per share. They see the company’s strong content as being the main driver of its future growth, believing that its “inherent two-way communication and on-demand model” make it possible for it to more quickly identify content that’s attractive to its viewers.
They say as Netflix grows and enjoys more scale, it should be able to “systematically purchase content that drivers viewership share gains and subscriber growth across all of its markets.” They’ve also upped their average revenue per user estimate from $10 to $12 in 2023.
