Analyst Raises NFLX Stock Estimates
Netflix, Inc. (NASDAQ:NFLX) stock has fallen as much as 23% following the company’s 2015 fiscal fourth-quarter earnings back in January. But NFLX stock has recovered significantly ahead of earnings next Monday and is now only down about three percent for the year. Can NFLX stock maintain its forward momentum coming out of earnings? According to at least one analyst, NFLX is set to soar.
On Wednesday, April 13, BTIG analyst Richard Greenfield reiterated his “Buy” rating on Netflix stock and raised his 12-month price target from $136.00 to $150.00. (Source: “Netflix Stock Surges Ahead Of Q1 Earnings Report Next Week,” Investor’s Business Daily, April 13, 2016.) From Thursday’s session opening price of $110.03 per share, that would imply a 36% upside in NFLX stock.
So what is going to get Netflix stock to Greenfield’s price target?
NFLX stock’s fate is usually tied to subscriber growth, and that is the metric that Greenfield is basing most of his price target on, as the analyst is raising his subscriber growth forecasts.
“We believe the cadence and consumer appeal of Netflix’s original/licensed content is leading to greater than expected global net subscriber additions,” Greenfield said. “The combination of a global shift to on-demand streaming video, an increasingly diverse slate of programming that appeals to all members of a household and best-in-class technology is propelling Netflix’s gross subscriber adds and reducing churn.” (Source: Ibid.)
Netflix ended 2015 with 45.00 million U.S. subscribers and 74.76 million global subscribers, but growth is starting to slow. When Netflix reports earnings next week, the online streaming giant is expected to post 1.75 million new U.S. subscribers, which would be the smallest increase since 2012. That represents an uptick in subscribers of only 12%.
Most growth at this point will have to come from overseas, which, luckily for Netflix, is helping to offset the slowdown in domestic growth. In Netflix’s latest quarter, international subscribers increased by 66%, up to 30 million. Netflix is forecasting another 4.3 million international subscribers will be added in the current quarter.
Despite rapid international growth, many analysts are concerned that subscriber additions will soon hit a cap now that Netflix is available in every country except China.
“They’ve been fuelling subscriber growth through global launches, but now they’ve capped out,” said Richard Broughton, research director at Ampere Analysis. “Other than China, there are no new markets. What’s next?” (Source: “Netflix plot for world domination must win skeptics at home,” The Globe and Mail, April 14, 2016.)
But Greenfield sees it differently. Greenfield believes that subscriber additions are about to get a boost because of three main reasons: global consumers are shifting to on-demand streaming video; Netflix is increasingly diversifying its video catalog that appeals to a wide range of viewers; and the company’s streaming technology puts it above its competitors. (Source: “Netflix, Inc. Up On Positive Analysts Reports Ahead Of Earnings,” ValueWalk.com, April 14, 2016.)
As such, Greenfield is forecasting that Netflix will have 127 million global subscribers by the end of 2018 and 150 million by 2020. That sounds like lofty expectations, but Netflix just expanded into 130 additional countries in 2015, so the company is just getting started in those markets. (Source: Ibid.)
The Bottom Line on NFLX Stock
Going into earnings, investors will have their eyes set on subscriber growth. If Netflix manages to surprise, $150.00 doesn’t sound too far off for NFLX stock.