Analysts raise their target price for Netflix (NFLX) as shares rise
The stock was up a significant 9.2 percent yesterday at $336.11. The subscriber increase was not the only factor boosting the stock price as at least 12 brokerages raised their price target. JP Morgan was the most bullish with a target of $385.
JP Morgan analyst Doug Anmuth wrote: “Netflix’s content strength and the global, secular shift to internet entertainment are driving subscriber upside.”
Anmuth also claimed: “Overall, NFLX continues to execute extremely well, emphasizing its case as the best global, secular growth story in tech…NFLX’s content strength & the global, secular shift to Internet entertainment are driving subscriber upside & we believe providing mgmt w/greater confidence into what is normally a seasonally slower 2Q”.
The market cap of Netflix reached almost to $146 billion while the stock price hit its intra-day high. Netflix shares have gained about 60 percent just so far this year. It is the top performer on the S & P 500 Index. The price rose another six percent in after hours trading.
Earnings and revenues for the first quarter were in line with analysts’ expectations.
Netflix adding subscribers by the millions
In the U.S. alone, Netflix added 1.96 million subscribers in the first quarter. This compares with 1.42 million last year. It also showed even a greater increase in subscribers outside the U.S. with 5.46 million new subscribers, compared with 1.96 million last year. Both these figures surpassed analysts’ average estimates.
Mark Mahaney, RBC Capital Markets analysts wrote: “We believe the breadth of Netflix’s content offering is paying dramatic dividends in terms of subscriber adds and retention.”
Netflix even did better than it had predicted. The company told investors that it expected to add 1.45 million subscribers in the first quarter and another 4.9 million outside the U.S. Instead it added 1.96 million domestically and 5.46 million foreign subscriptions. The company now claims to have 125 million subscribers worldwide.
Netflix faces stiff competition
While Netflix is of now ahead of any of its peers, it faces stiff competition from large firms such as Hulu, Apple Inc and Amazon Inc’s prime video. They too have been investing heavily to have more content leading to price increases. Amazon Prime raised the price of its Amazon Prime by two dollars a month in January. Netflix also raised its prices for some U.S. and European plans last fall.
Netflix will no longer get new Walt Disney movies starting in 2019. Disney is planning to launch its own streaming service.
However, Netflix benefits from a wide range of agreements with wireless carriers and internet service providers who bundle Netflix into their service offerings. In the U.S., companies such as T-Mobile, Verizon, Cablevision Comcast Corp, Cox Communications and others all offer Netflix subscriptions. In France, Netflix has a deal with SFR Altice and also with Proximus in Belgium.
Michael Graham, a Canaccord Genuity analyst, said: “While these offerings so far are most prevalent in mature markets, leading to a lower Netflix average selling price and also lower churn, partnerships could also become more important in emerging markets.”
A clear majority of 46 analysts that cover Netflix stocks had buy ratings; but a significant number have hold ratings, and a few even had sell or lower. 26 rated the stock a buy, 17 rated it a hold and just three rated it sell or lower.
