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Netflix Beats Earnings Estimates With Subscriber Net Additions In 3Q

Banks comment on Netflix, Inc. (NASDAQ:NFLX) big earnings beat driven in part by subscriber net additions. See below for what the analysts are saying is next.

Subscriber Net Additions
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Deutsche Bank: Maintaining Hold Based On Valuation Following Strong Subscriber Net Additions Results And Guidance

We are maintaining our Hold rating and raising our PT to $360, from $350, driven by a higher subscriber forecast and time-value-of-money appreciation since our last model update in July. The key take-away from the quarter’s results was that paid subscriber net additions in 3Q, as well as guidance for 4Q, were higher than our forecast (note that our forecast was above sell-side consensus and buyside expectations). We had forecasted 5.75M international paid net adds in 4Q, vs guidance of 6.1M; in terms of total international net adds, we were at 7.0M pre-earnings, vs 4Q guidance of 7.6M. A material and growing component of Netflix’s subscriber  net additions is coming from partnerships with pay TV providers, mobile operators, and other partners; which we think has been a key driver of net add acceleration over the past several quarters.

Q3 hedge fund letters, conference, scoops etc

Barclays: Netflix Crushes guide and estimates

Given the miss last quarter, there was understandable Worry going into earnings especially around q4 net add guidance. NFLX beat Q3 net Add expectations handily (6.96m actuals vs 5m guide) and its q4 net adds guide at 9.4m came 23$ higher than consensus and our above- consensus 8.1mm estimate. Management indicated that even their most popular shows tend to be low single digit percentage of hours viewed which implies dependence on individuals shows isn’t Material which may be offsetting the impact of major shows missing from q4. This beat and raise was despite a ~11$ increase in asps (ex-FX), which shows the degree of pricing power the model still retains. Overall, guidance implies NFLX will add an incredible 27.4m paid subs this year, which is a~5.9m acceleration over last year. This YoY increase in the second derivative is, in our view, the key to sustaining valuation. To put this growth into context, Netflix is adding almost as many subs in one year as HBO (domestic subs) did in ~40 years and 35$ more than what hulu has been able to add in 10 years. So, any doubt about NFLX’s momentum should be assuaged given the guide.

Nomura: Recap

Net adds were significantly ahead of our estimates and consensus, driven by strong global growth, including in Asia. Revenue was in line with the outlook, and EBITDA was moderately ahead (operating margin was 12.0%). EPS also saw benefits of over $45mn from Eurobond remeasurement and tax reform impacts. Management noted an increased focus on owned original first-run content (evidenced by its recent investment in its new Albuquerque production hub), which has the potential to lower costs by avoiding third-party licensing markups. International original content is another point of emphasis, and the company plans to continue to invest heavily in building out local content libraries. On that front, Netflix does not anticipate any significant impact from local content quotas in the EU. Moving forward, the focus is now squarely on content spend and the break-even timeline. We are increasing our estimates slightly and maintaining our $370 price target.

PiperJaffray: Conclusion

Netflix reported Q3 domestic and int’l subs well above consensus, while Q3’18 domestic and int’l contribution profit were also ahead of expectations. We believe Q3 new subscriber additions were favorably impacted by a solid content slate and the ongoing shift of content dollars to online video services, with Netflix leading the pack. Q4’18 guidance is also above consensus for sub adds, essentially in-line for revenue and below consensus for profitability. Our estimates for FY19-20 are upwardly revised based on the strong Q3 results and Q4 outlook. We reiterate OW and our PT is now $430 on NFLX.

So should investors focus on Netflix’s positive subscriber net additions or its less positive cash flow numbers? Tell us in the comments!