Netflix stock edged higher on Wednesday after analysts at Stifel praised the quality of the company’s catalog of originals and raised their price target. They believe the company will be able to accelerate its subscriber adds next year as it faces easier comparisons against the effects from the un-grandfathering of longtime subscribers related to the price increase that took place for new subscribers two years ago.
Netflix stock price target to $150
In a research note dated Dec. 21, Stifel analyst Scott Devitt reiterated his Buy rating on Netflix stock and boosted his price target from $140 to $150 per share. He believes most investors are looking for the company’s subscriber adds to fall in 2017 against this year’s numbers, but he sees this as an overreaction to problems that are only temporary.
As a result, he has added about 1.1 million net subscriber adds to his estimate for next year and expects the company to add a little more subscribers next year than it did this year.
Netflix keeps growing its slate of original content
Devitt called Netflix’s originals catalog “dramatically deeper” as it enters 2017, and the catalog will get even deeper next year, as the company plans to produce 1,000 hours of new originals. The Stifel analyst believes that the addition of all these hours of original programming will “meaningfully” boost the value proposition of a Netflix subscription.
The company produced more than 600 hours of original programming this year, making it already the biggest producer of original content in the world according to most measurements. It said recently that it has about 30 scripted original series that are currently in different production stages. Devitt counted between 35 and 40 unique shows launching this year, which is about twice as many as the company produced in 2015.
Netflix plans to double the number of original series again in 2017 and has set what it says is a “conservative” target of 1,000 hours of original programming. The company also said it plans to launch about 20 unscripted shows in 2017 after launching few of them before this year.
Netflix’s The Crown is a huge hit
Loop Capital Managing Director David Miller has a Buy rating and $151 price target on Netflix stock and focused specifically on the company’s new show The Crown. He believes the show has enjoyed a level of success similar to that of Stranger Things, which drove Netflix’s third quarter results. Due to this, he expects The Crown to offer a similar impact on the company’s fourth quarter results.
The Crown focuses on the British monarchy in the years after World War II, starting with Queen Elizabeth’s ascension to the throne when she was 25 years old. Netflix has not revealed how much it paid for the series, but some sources have stated that no expense was spared and that the company shelled out $110 million for ten episodes. By comparison, the average one-hour TV drama costs about $3.1 million, he explains.
Miller sees the show’s release as strategic because about 2.2 billion people live in nations that were once part of the British commonwealth. As a result, he believes it has universal appeal and is not surprised that it has been well-reviewed all over the world.
Bears still worried about profitability at Netflix
Naturally, all of this spending causes bears to question Netflix’s profitability. Jefferies analyst John Janedis has an Underperform rating and $80 price target on Netflix stock, and he’s concerned about marketing expenses remaining high. He feels that as competition and penetration rise, the company might need to spend more on marketing through “more traditional platforms.”
Marketing expenses are tied closely to original content, as the company’s originals have been a main component of its brand. Janedis stated in his Dec. 16 research note that the company spent about $2.6 million in marketing per hour in 2015 and will spend about $1.7 million per hour this year. Based on these numbers, he’s estimating about $1.3 million per hour in marketing expenses next year.
In addition to original content, the company’s move into more international markets provides another reason for its marketing expenses to remain elevated this year.
Shares of Netflix stock rose by as much as 1.32% to $126.75 during regular trading hour on Wedesd
