Despite some headwinds for the overall stock market today, Netflix stock rode a rhapsody of Wall Street analyst reports touting the strength of yesterday’s quarterly earnings report to rise on heavy trading volume.
Shares finished at $364.70, up 5% even as all three major indices ended up in negative territory. While the stock price is still below the 52-week high of $423.21 established over the summer, shares have gained more than 70% in 2018 to date.
In its earnings release, the company reported 137 million global subscribers. In the September quarter, it said it added 7 million, exceeding its conservative forecast for 5 million net additions. The tally rose a bit more than 1 million in the U.S., with the remaining 6 million new subscribers signing up internationally. Earnings of 89 cents a share blew past analysts’ consensus estimate of 68 cents. Streaming revenue surged 36%, reaching nearly $4 billion, in line with Wall Street’s expectations.
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The titles of some of the analyst reports that rolled in overnight sum up the prevailing sentiment: “Back in the Driver’s Seat;” “Nailed It;” and “Returning to Our Regularly Scheduled Program.”
It isn’t that analysts are positive about every aspect of the company’s future, of course. Many, even with buy ratings on the stock and an upbeat general view, are concerned about the pattern of companies (notably Disney and WarnerMedia) promising to mount direct-to-consumer offerings rather than hock their wares to Netflix. Where, Wall Street wonders, would the streaming giant be without Friends, for example? (Deadline’s Dawn Chmielewski explored that question after the numbers came out.)
“It will be interesting to see how much further Netflix’s spending on originals steps up from here,” Tim Nollen at Macquarie wrote. “The company noted that its largest owned titles still represent only low single-digit percentages of total viewing, yet that these are more valuable to it over the long term. As some licensed content gradually comes off the platform, Netflix will rely more on its scale in owned originals to drive sub growth and engagement.” Even so, he added, the company is “still setting the tone for OTT viewing.”
In his note to investors, Sanford Bernstein’s Todd Juenger focused on the “astounding” subscriber growth. “It took 10 years to go from 0 to 100 million paid subs,” he wrote. “We project it will take 2 years to go from 100 to 150 million — on pace to achieve the second 100 million subs in well less than half the time it took to get the first 100 million.”
Juenger now projects Netflix will reach a “milestone state” of 300 million subscribers by 2023. Accordingly, he has raised his 12-month price target to $465, up from $434.
Kannan Venkateshwar of Barclays also upped his target to $430 from $415, saluting what he expects to be a less volatile 2019. Execs in their remarks about earnings suggested they would bring forward a “more deliberate release schedule next year,” Venkateshwar wrote, “which could also smooth out trends overall.”
Michael Nathanson of MoffettNathanson, who maintains a neutral rating on the stock, wrote that “the financial picture is much more complicated” than steady subscriber gains suggest. He cited management’s negative revisions to its key financial metrics in 2018 and lower forecasts in 2019, as well as the price having gotten out of hand. “We can’t honestly find a defendable valuation approach to support this stock,” he wrote.
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