Big Upside for NFLX Stock
Buying shares before earnings can be risky, especially if they are shares of a high-momentum tech company. But one analyst says you should do just that with Netflix, Inc. (NASDAQ:NFLX) stock.
The analyst is Andy Hargreaves from Pacific Crest Securities. On Monday, April 4, he said that investors should buy Netflix stock before the company reports its first-quarter earnings on April 18. The analyst has an “Overweight” rating on NFLX stock and a price target of $140.00. That would imply a 34% upside for the on-demand video streaming giant. (Source: “Buy Netflix Amid Overdone, Myopic Concerns Related to Q3 U.S. Sub Growth, Analyst Says,” Benzinga, April 4, 2016.)
That’s a pretty bullish call. If you have been watching Netflix stock in the past few months, you would know that investors have become skeptical about the company’s growth story. Since entering 2016, the stock has slipped 8.8%.
The main concern here is user growth. As a major player in the Internet industry, Netflix’s user growth is perhaps the first thing investors choose to look at in its earnings reports. So far, things have been going quite well. It’s the future that could be worrying.
The company already has more than 75 million worldwide subscribers. The size of Netflix’s current userbase makes investors wonder just how much potential is left to realize. In the U.S., user growth has already slowed down from 1.90 million net additions in Q4 2014 to 1.56 million net additions in Q4 2015. (Source: “Q4 2015 Letter to Shareholders,” Netflix Inc, January 19, 2016.)
The analyst’s opinion on this is, “don’t step over quarters to pick up dimes.” He believes that the concerns about U.S. subscriber growth is overdone and shortsighted.
“We recommend investors buy NFLX to take advantage of the passing of the near-term event and benefit from the perception of Netflix as a global business instead of a U.S.-centric one,” wrote Hargreaves in a note.
In case you haven’t noticed, Netflix has become almost fully global. The company announced in January that its streaming service is available everywhere in the world except China. International subscriber growth could be huge.
In fact, they already are. Even before Netflix’s major expansion this January, international users were the biggest contributor to the company’s subscriber growth. In the most recent quarter, the company added 4.0 million international subscribers, accounting for over 72% of the total 5.6 million members added.
Now, with an additional 130 markets opened in January, NFLX stock could get another boost. “Investors are currently embroiled in a heated debate over a few hundred thousand U.S. subscribers. In the meantime, Netflix’s global expansion creates potential upside that is measured in the millions. As we move past the Q2 guidance, we expect the conversation to shift, which should refocus investors on the larger opportunity and be positive for NFLX,” said the analyst.
As it turns out, there could be some indication that Netflix’s global expansion plan is working. In January 2016, the company saw its biggest increase in app downloads. Also, international downloads surpassed U.S. ones for the first time. (Source: “Smartphone Stars: Netflix, Facebook and Alphabet,” Barron’s, March 11, 2016.)
The Bottom Line on NFLX Stock
Netflix is scheduled to report its first-quarter earnings after the closing bell on Monday, April 18. The company’s own guidance for subscriber growth—the most important metric—is 6.1 million worldwide.
If the actual results turn out to be better, don’t be surprised if there is a sudden spike in NFLX stock.