Is Netflix Worth More Than CBS? Wall Street Says It Is After Strong Q1 Report

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Netflix shares are rocketing this morning, rising 14.7% and touching an all-time high of $546.60, following last night’s Q1 report showing stronger than expected subscriber growth in the U.S. and abroad. The jolt added nearly $4.2 billion to Netflix’ market value — more than the entire market cap for Starz ($3.8 billion) and nearly as much as Lionsgate ($4.6 billion). At $32.9 billion, Netflix now is considered more valuable than CBS ($30.6 billion) and Viacom ($28.8 billion).

But last night’s upbeat news didn’t end the vigorous debate on Wall Street over whether Netflix will continue its torrid growth pace or stumble as costs rise and new entrants including HBO Now move in. Predictions about where Netflix’s stock price will go during the next 12 months range from $270 to $625. Here’s a sampling of today’s reactions to Netflix — its stock symbol is NFLX — starting with the bears.

Wedbush Securities’ Michael Pachter (Underperform, Target stock price: $270, up from $245)

While we acknowledge that Netflix’s subscriber growth is impressive, we remain skeptical that it can deliver the leverage many investors expect. Content costs are on the rise, as evidenced by the $626 million increase in streaming content liabilities in Q1. The company has added over $2.6 billion to its streaming content library over the last two quarters, while amortizing only $1.5 billion of this amount, meaning that it has deferred recognition of over $1 billion in streaming content spending in the last two quarters alone.

Sterne Agee’s Arvind Bhati (Neutral, Target: NA)

Although, obviously too early too tell, we believe [HBO Now] remains a threat to NFLX’s U.S. subscriber growth rate in the back half in 2015 and beyond. CEO Reed Hastings has downplayed this as he believes both services could thrive concurrently. We think NFLX will do well but we are less sure of its potential subscriber growth rate.

MoffettNathanson Research‘s Michael Nathanson (Neutral, Target: $400)

When you are beating sub numbers by tripling the number of original hours [of programming], no one cares about any of the less sexy topics like international losses, content amortization policies or changes in working capital…[W]e caution how quickly higher international losses can come back into focus if sub trends begin to slow.

Piper Jaffray’s Michael Olson (Neutral, Target $487)

In 2016, we expect the company to begin widely implementing its “skimming” strategy, which will be a less expensive way to enter new markets by leveraging existing content rights and doing less language localization; we expect this will allow international contribution margin to flip positive for 2017. International contribution margin will clearly lag the US, but over time (we believe beyond 2020) it may be able to approach domestic levels.

Credit Suisse’s Stephen Ju (Neutral, Target $505, up from $461)

[It was] another well-executed quarter for Netflix as it continues to benefit from increased consumer engagement and delivers a superior value proposition. We expect investors to look past the below-expectations profit guide for 2Q15 given the greater strategic imperative in global expansion management first articulated on the last earnings call.

Morgan Stanley’s Benjamin Swinburne (Overweight, Target: $535)

Original programming is building enough in quantity (hours) and quality (across genres) that it is allowing Netflix to bring more new subscribers to the service in 1Q15 than a year ago, despite already reaching nearly 45% of all US broadband households. We are also seeing the efficiency of original programming on the margin front, as Netflix uses its growing global scale to amortize more content costs in new international markets, driving up US margins – something that should continue through ’15.

Janney Capital Markets’ Tony Wible (Buy, Target: $600)

The accelerated global rollout is allowing NFLX to scale costs faster while providing more funds to aggressively bid for content. The use of leverage is amplifying this virtuous cycle while DVD economics are stabilizing with slowing attrition and higher margins…. NFLX is poised to thrive in international markets with this unprecedented spend as it creates a virtuous cycle. We note that NFLX’s success may also create one of the bigger threats if governments react to protect any perceived harm to their local media.

RBC Capital Markets’ Mark Mahaney (Outperform, Target: $600, up from $550)

Netflix is proving its universal appeal and is providing more evidence (rising U.S. Gross Margin) that it can acquire content more efficiently. Which means that margins still have substantial room to move upwards. Which means that there’s close to $50 in long-term EPS power. And since the Market will arguably put a premium multiple on a global scale, secular-growth, high-margin subscription business…there’s still a lot of upside ahead for NFLX shares.

Cowen and Co’s John Blackledge (Outperform, Target: $625, up from $465)

An encouraging trend in the US market is that streaming sub net adds in ’15 are tracking ahead of ’14 net adds through 1H15, which speaks to NFLX’s improving content offering and ramping Original slate are resonating with subs, which is reducing churn and driving gross sub additions. As a result, we now forecast 60MM US streaming subs in 2020 (vs. 56MM prior) and 66MM Intl subs in 2020 (vs. 52MM prior).

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