Wall Street analysts are squarely focused on what Netflix has to say about subscriber growth, price hikes, and its rivals launching streaming services, when the company reports earnings after the market close Tuesday.
Shares of Netflix are up over 30 percent year-to-date.
“Sell-side consensus international paid subscriber expectations are 24.4 million and 24.8 million net additions, respectively, vs our estimates of 27.4 million and 27.5 million,” wrote Deutsche Bank analyst Bryan Kraft who also upgraded the stock Wednesday and raised his price target.
“The idea that consumers will choose Disney+ over Netflix seems unrealistic, unless a given consumer’s use case for having Netflix has been limited to watching Disney films,” he said.
“We see limited scope for a negative surprise on domestic [subscriptions] in 1Q or 2Q guidance, despite concerns about price hikes and competition, ” Bank of America analyst Nat Schindler wrote. “We would see any dip on either issue as a particularly attractive buying opportunity because we do not view Disney as the competition,” he said.
Analysts at KeyBanc also seemed skeptical that any of the new competition would pose much threat to the streaming giant subscriber results. “While other services may carve out valuable add-on positions, we do not expect the launch of new services from Apple, Disney, AT&T, or others to meaningfully impact Netflix..”
“We continue to view Netflix’s strategic positioning very favorably,” they said.
One analyst noted that he had spent the last few months talking to investors and asking, “What can go wrong here?”
“Questions have included expected announcements from Apple/Disney (as a possible reflection of future competition), pricing power vs. churn (impact on [long-term] margins vs. [short-term sub dynamics) and what content slate investments might yield against forward growth,” UBS analyst Eric Sheridan said. “Ahead of its earnings report, we think many of these fears are well understood by investors.”
Here’s what else analysts think about Netflix earnings:
“We see limited scope for a negative surprise on domestic subs in 1Q or 2Q guidance, despite concerns about price hikes and competition. Given strong recent growth trends we believe most investor concerns over Netflix’s long term potential have been alleviated. Some near-term competitive noise from the Disney launch and potential for weak 2Q domestic sub guidance as NFLX rolls out its price increase to existing US subs could shake investor confidence briefly. We would see any dip on either issue as a particularly attractive buying opportunity because we do not view Disney as the competition and we expect, as has happened before, that any price hike based increase in churn would be short-lived as consumers quickly come back for the content they crave.”
“Sellside consensus international paid subscriber expectations are 24.4M and 24.8M net additions, respectively, vs our estimates of 27.4M and 27.5M. Netflix has de-rated enough, risk/reward profile is attractive. The company now trades at 7.9x EV/2019 sales, vs in excess of 10x sales last summer, when we lowered our rating to Hold based on valuation. Our $400 12- month PT implies 7.3x 2020E sales, in line with the 3-year median multiple, and below the median multiple over the past 1 and 2 years (9.0x and 7.9x, respectively). We see growth in revenue taking Netflix to $400 over the next 12 months even with de-rating as valuation shifts from 2019 to 2020 estimates.”
“We continue to view Netflix’s strategic positioning very favorably and expect the Company to drive excellent subscriber growth well into the future with growing ancillary opportunities. Valuation and our view of modest upside potential to near-term subscriber expectations prevent a more favorable rating. … .2019 subscriber estimates leave only modest room for upside unless investment efficiency improves. … .Competitive concerns remain modest. We continue to believe Netflix has large-scale advantages in the battle to capture broad general entertainment viewing. While other services may carve out valuable add-on positions, we do not expect the launch of new services from Apple, Disney, AT&T, or others to meaningfully impact Netflix’s subscriber results over the next year.”
“Over the course of the past 3 months (since the last earnings report), we have been engaged in a series of debates with investors – most tilting toward a theme of “what can go wrong here?” as investors look at 2019/2020. Questions have included expected announcements from Apple/Disney (as a possible reflection of future competition), pricing power vs. churn (impact on LT margins vs. ST sub dynamics) and what content slate investments might yield against forward growth. Ahead of its earnings report, we think many of these fears are well understood by investors. Looking long-term, we remain very constructive & continue to remain rooted in key themes: a) upside to sub growth (as scale builds, esp. Int’l); b) higher margin/FCF trajectory than currently implied by the market (leverage on content & user economics) & c) the moat around NFLX’s global positioning widening and its LT secular winner status remaining intact.
“Our analysis of Netflix search trends points to a strong Q1, with potential upside for both int’l and domestic subs. Specifically, guidance points to 9.1% y/y domestic sub growth in Q1 (150bps decline in y/y growth vs. Q4) and our search index points to 12.6% growth (110bps acceleration in y/y growth vs. Q4). For int’l, Q1 guidance implies 38% y/y sub growth (190bps decline in y/y growth vs. Q4) and our index points to 50.8% (480bps acceleration in y/y growth vs. Q4). We would not directly apply these implied growth rates and it is important to take note of the error in our model vs. reality, but the index is directionally positive, showing a high likelihood of a strong Q1 for Netflix sub adds.”
“Our investment thesis remains based on our beliefs that 1) the Netflix consumer offering is a substantial customer value in both price and utility, and 2) the company’s efficient model will continue to support the virtuous cycle of quality content delivery and monetization. Though major OTT launches will occur over 2019-20, we maintain our view that Netflix holds a firm financial and competitive position over the next several years and reiterate our BUY thesis and $420 price target.”
“Our Tracker continues to point to ~in-line 1Q, while 2Q consensus looks like a slightly low hurdle (Sacred Games; lower prices in India). Domestic: Our Tracker continues to point to modest upside 1Q, while 2Q looks like a slightly high hurdle (not assuming much churn per price increases). Our Content Tracker was up nicely in 1Q (and the slate looks to remain strong) and our Valuation Tracker shows NFLX still well off of highs (sales, EBITDA multiples vs the S&P 500) achieved in 2018, 2019. Maintain Buy, $402 price target.”