Netflix Inc.'s earnings report (NFLX) surprised the upside in many metrics, but stocks fell after the transmission giant issued the impression of earnings.
But badysts across Wall Street are raising their price targets on Netflix. In fact, 14 badysts raised their price targets on Friday, including the biggest Netflix bear of Wedbush securities, Michael Pachter.
Netflix reported Thursday's earnings per share of 30 cents, beating Wall Street's GAAP expectations of 24 cents. Revenues reached $ 4.18 billion, missing estimates of $ 4.2 billion. The net additions of international subscribers were 7.31 million, surpbading the estimates of 6.1 million. Additions of subscribers in the United States were 1.53 million, exceeding estimates of 1.4 million. And as a result of an increase in the subscription price, Netflix forecasts 7.3 million net international paid additions for the first quarter of 2019, which is above a consensus estimate of 6.37 million.
Still, stocks fell after the earnings report and closed on Friday with a decline of 3.99% to $ 339 per share.
RBC Capital Markets
RBC badyst Mark Mahaney raised his target price to $ 480 per share from $ 450, which represents a 36% increase. "The secondary growth of global payments continues to accelerate," Mahaney wrote in a note on Friday. Even with the price increases, which Mahaney believes will not harm demand, "Netflix offers a truly compelling value proposition with global appeal." It moved its operating margin estimate for the full year of 2019 by 1.1% and its estimate of 2019 EPS went up 3.4% to $ 4.17. He said that Netflix reached its "maximum free cash flow burn", which was $ 3 billion in all of 2018.
JPMorgan badyst Doug Anmuth moved his target price to $ 435 from $ 425. "Immediately after this week, 4Q18 results confirmed a strong momentum in the year and in 2019," Anmuth wrote in a note. He believes that Netflix could lose only more than 1 million subscribers paid for price increases, but still expects strong revenue growth. In addition, "the operating margins should move sequentially up to the & # 39; 19 as the price increase is established, suggesting an exit rate of the 2019 operating margin at least in the middle of adolescence." A great goal for Netflix is to get its operating margin in that range.
In addition, "the momentum of NFLX content should continue in Q1, a seasonally strong period, and the forecast of net addition paid could be conservative," Anmuth said. Birdbox & Black Mirror from Netflix: Bandersnatch sold well in a strong fourth quarter for the content. He expects improved operating margins to make Netflix's free cash flow "significantly improve in 2020."
Analyst Michael Graham raised his target price to $ 415 from $ 400. "We are strongly encouraged with respect to our investment thesis, which revolves around a rapidly expanding catalog of original content that drives strong subscriber growth," he wrote. . He added that "the slate of strong content in the fourth quarter should continue until 2019, giving Netflix enough comfort to raise prices in the domestic market." He also expects the burning of cash to moderate by 2020 thanks to stronger operating margins.
Analyst Benjamin Swinburne raised his target price to $ 450 from $ 430. Swinburne summed up most of the collective thesis of Wall Street. "The results of the fourth quarter and the guidance of the first quarter, at a high level, reinforce the thesis of investment in NFLX shares, specifically, accelerating net additions, the power of prices and the growing visibility on the road to generation of free cash flow, "he wrote.
Analyst Michael Pachter, a Netflix bear for a long time, raised his target price from $ 150 to $ 165.
"The Netflix administration seems confident that the price increase will have little or no impact on turnover, guiding a greater number of net additions of internally paid subscribers," Pachter wrote. He added that "we tend to agree with this evaluation in the short term, since we think that the vast majority of national subscribers use the service frequently." But his bear thesis is intact, since "the company must replace the existing content provided by the four competitor studios, and the remaining content available for licensing is likely to be in high demand from Amazon, Hulu and possibly the four new broadcast services from the competition. "He said he believes that a discounted cash flow valuation is" impossible. "
Stocks gained no momentum on Friday, as a sharp divergence in investor sentiment over subscription price increases made Netflix's volume of options the second highest of any stock for the day. "In the midst of this post-earnings downturn, we are seeing a lot of options activity on both the bull and downside side, illustrating the divergence in the way operators believe that the rate increase will affect the shares, "said Mary Ryan, equity options strategist at E * Trade Financial. .
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