Netflix Q3 2017 earnings are slated for release on Monday after closing bell. Consensus stands at 32 cents per share in earnings on $2.97 billion in revenue. In last year’s third quarter, the streaming video provider reported earnings of 12 cents per share on $2.29 billion in revenue.
Netflix recently announced that it’s raising monthly subscription prices for most of its plans, and Wall Street has praised the decision, mostly because it should help combat one of the biggest sell-side arguments: soaring content costs. Recently CEO Reed Hastings defended the company’s cash burn, emphasizing that although massive piles of capital are needed up front to produce original content, the payout on that content comes “over many years.”
He also said that they’ve already witnessed payouts on some of its hit content, and that’s why they’re comfortable with their decision to keep investing in original series. By following this business model, Netflix owns the content outright rather than having to pay on a regular basis to license content owned by others. The company also doesn’t lose out on content it once was able to offer like it did when Walt Disney announced that it’s pulling the plug on the previous deal with Netflix.
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Ahead of Netflix Q3 2017 earnings, the company received a new Street-high price target from Goldman Sachs. Analyst Heath Terry reaffirmed his Buy rating and raised his price target on Netflix stock from $200 to an ultra-bullish $235 in a note to investors on Friday. The stock reached a new high of $200.82 early Friday before pulling back, so bulls with a $200 price target are faced with a choice: raise their price target on Netflix stock or downgrade it because they feel its valuation is full.
Terry recommends that investors buy the stock leading up to the Netflix Q3 2017 earnings report, despite its 60% year-to-date increase. He believes Netflix beat subscriber estimates for the third quarter and that it will do so again for the fourth quarter.
He noted again that Netflix has been driving subscriber growth through content and pegged the company’s second-half subscriber adds at 13.9 million net subscribers, versus the consensus of 10.8 million. By 2020, he expects Netflix to have 130 million international subscribers versus 52 million at the end of the second quarter.
Canaccord Genuity analyst Michael Graham raised his price target for Netflix stock from $200 to $225 in a note to investors on Oct. 9. He estimates that more than 40% of U.S. households have a subscription, and like Terry, he expects the company’s original content slate to continue driving subscriber and share growth. He’s also positive on the company’s international strategies, which include localization, deals on set-top boxes and more local original content.
Goldman Sachs wasn’t the only firm to boost its price target for Netflix stock on Friday. JPMorgan analyst raised his price target from $210 to $225. Morgan Stanley analyst Benjamin Swinburne also raised his price target from $195 to $225 ahead of the Netflix Q3 2017 earnings release, citing the company’s price increase as a signal of its confidence. He added that the company did lose some subscribers who were grandfathered into the last price increase when their prices were raised much later. However, he also said that many of these subscribers signed back up later.