What Analysts Are Saying About Netflix After Earnings

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Netflix Inc. (NASDAQ: NFLX) hit a new all-time high in Tuesday’s session in the wake of earnings, although shares quickly retreated. Earnings were fairly positive for the third quarter, and Netflix tallied a record number of subscribers for the period. This was enough to push shares to new highs, but it looks like there is some profit-taking going on at this point. Analysts were a little mixed in their reactions, but most ultimately were positive.

24/7 Wall St. has included some highlights from the earnings report, as well as what analysts are saying about Netflix after the fact.

The online streaming giant posted $0.29 in earnings per share (EPS) and $2.985 billion in revenue, which compared with consensus estimates from Thomson Reuters of $0.32 in EPS and revenue of $2.97 billion. The third-quarter of last year reportedly had EPS of $0.12 and $2.29 billion in revenue.

During this quarter, Netflix added 5.3 million memberships globally, a record for the quarter and an increase of 49% from last year. Year to date, net adds of 15.5 million are up 29% from last year.

For the fourth quarter, the company is predicting global net adds of 6.30 million (1.25 million in the United States and 5.05 million internationally) versus 7.05 million in the year ago quarter, which was Netflix’s all-time high for quarterly net adds.

In terms of the outlook for the fourth quarter, Netflix expects to see $0.41 in EPS and $3.27 billion in revenue. The consensus estimates are EPS of $0.33 and $3.15 billion in revenue.

Oppenheimer maintained its Outperform rating and increased its price target to $245 from $215. The brokerage firm believes that fourth-quarter subscriber guidance suggests future pricing cycles will be less painful than 2016’s. Oppenheimer also said in its report that everything is moving in right direction now, but investor anxiety over 2018 cash burn and content competition looms if subscriber growth slows.

Credit Suisse maintained a Neutral rating and lowered its target to $209 from $210. It said:

Whereas we were previously expecting a staggered price hike to its user base, it does appear that Netflix will roll out to the relevant markets at one time, which does raise our revenue estimates for 2018. This is offset by increased content acquisition spend expectations of between $10.9-$12.4b next year – which at this point should not be a surprise as the company looks to pull the quality of its library even further away from its competitors in a bid to continue winning consumer engagement time. Our price target remains essentially unchanged at $209 (vs prior $210) as the increase in revenue is offset by higher content expenses. We remain on the sidelines on balanced risk/reward and maintain our Neutral rating.

Wedbush’s Michael Pachter maintained an awful Underperform rating but raised hit target to $93 from $88, which is still less than half the value today. In order to reverse its $2 billion cash burn, Wedbush expects that Netflix will have to implement some combination of reduced content spending and price increases. Should its competitors continue to spend on content and keep pricing intact, this would likely result in stalled subscriber growth for Netflix and a much lower level of profitability.

A few other analysts weighed in on Netflix as well:

  • JPMorgan raised its price target to $242 from $225.
  • BMO raised its price target to $205 from $195.
  • Raymond James raised its target to $220 from $205.
  • Stifel raised its price target from $230 to $235.
  • RBC raised its price target to $250 from $210.
  • Morgan Stanley raised its price target to $235 from $225.
  • Jefferies reiterated its Hold rating and raised its target to $190 from $180.
  • FBR Capital markets reiterated its Buy rating but raised its target from $172 to $207.
  • Loop Capital reiterated its Buy rating and raised its target price to $242 from $228.

Shares of Netflix were last seen down more than 1% at $199.40, with a consensus analyst price target of $197.67 and a 52-week range of $110.68 to $204.38.