If there is one stock that Wall Street always expects big moves up or down after earnings, Netflix Inc. (NASDAQ: NFLX) has a long history of delivering on earnings volatility. The streaming media giant is set to report earnings on October 20, 2020 and analysts on Wall Street have been lifting their expectations far more than cutting expectations.
Netflix may have traded lower around word that a stimulus package is now looking less and less likely, but the low priced service may not need millions of consumers receiving more stimulus money to succeed. Netflix has also been looking at other potential premiums to drive revenues higher.
After adding about 15.8 million subscribers in the first quarter of 2020, followed by another 10.1 million in the June quarter, Netflix was clipped in July when its forecast was roughly 2.5 million subscriber additions for the third quarter of 2020. There is a growing theme that Netflix’s own estimate was just too conservative.
A fresh call on Wednesday was issued by Goldman Sachs and the reiterated its Buy rating (and maintained its position on the prized Conviction Buy List) and raised its target price to $670 from $600. The move is back to the firm’s prior target ahead of the earnings report in July and this puts Goldman Sachs as the street high analyst target price. he firm does expect more churn, but believes that the estimates for the rest of 2020 are still too low.
On October 9 a call from JPMorgan lifted subscriber expectations to 5.1 million from 3.1 million. The firm sees revenues coming in at $6.59 billion for the quarter as well. JPMorgan has an Overweight rating and the firm has a $625 price objective, which it raised from $535 after the last quarterly earnings report.
Back on October 7, Pivotal Research reiterated its Buy rating and raised its target to $650 from $600 in that call. Pivotal had raised its target from $459 just after earnings in July.
BofA Securities reiterated its Buy rating and $575 price objective on October 2. Still, the firm did note some headwinds from people returning to movies, more competition from platforms like Disney+ and Peacock, higher churn from the 25-plus million subscribers added in 2020 alone, live sports, and so on.
Jefferies raised its target to $570 from $550 and reiterated its Buy rating on September 28. The firm had just raised its target from $520 after earnings in July.
On September 15, KeyBanc Capital Markets initiated coverage with an Overweight rating and a $590 price target.
While some analysts have been less aggressive, this is a fairly large representation of views from key firms issuing mostly positive reports ahead of earnings. Many analysts are only willing to make their changes after big news events and after earnings rather than in anticipation of the news.
Netflix is one of those stocks where analysts and investors alike seem to be playing catch-up and where it always seem to look overvalued. That hasn’t kept it nor many of the other companies looking overvalued from rising over time.
Netflix now has more than 190 million global subscribers and it’s now available in 190 countries. Many of those newer countries have a very low market penetration and could easily blow beyond the total number of U.S. subscribers in the coming years. If Netflix can continue tweaking its prices (higher that is) and looking for up-sell opportunities, its sky high forward valuations versus 2021 estimates (over 60 times earnings and over 8 times revenue) may look artificially high over the long-term picture.
Netflix was down 1.7% at $544.50 on Wednesday, but the stock had traded as high as $572.49 before the Washington D.C. headlines about stalled stimulus talks. Its all-time high is $575.37 and its consensus analyst price target was $523.25.
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