Netflix shares up at least 17 analysts raising price targets

Tuesday’s streaming giant provided what will likely be one of the few quarterly earnings reports that have lasting effects on investors ’long-term thinking. In particular, Netflix made it clear that it has now amassed enough subscribers (more than $ 200 million) with enough average monthly revenue from each (just over $ 11) to keep the company afloat. Netflix expects to equalize in terms of cash flow by 2021, even with the promise of releasing at least one new movie each week by the end of the year and beyond.

The company, which has debts of about $ 16 billion, said it can now finance operations without applying for loans. Netflix will pay $ 500 million in outstanding debt next month with cash. After that, he said, he could use the excess cash to recoup shares, for the first time since 2011.

Comments about the cash flow certainly surprised those who have received a drop in shares, saying the company would never have enough self-generated cash to maintain its ambitious production program. These bears were wrong about this and more.

For example, Netflix added 8.51 million new net subscribers in the quarter, surpassing both its own forecast of 6 million additions and Wall Street’s most optimistic estimates. This is an impressive rebound after the disappointing incorporation of 2 million subscribers in the third quarter.

There have been concerns that the company’s huge growth earlier this year as the outbreak triggered by a pandemic stole the subscribers of the future. Instead, it seems that growth has simply accelerated. Netflix expects to add 6 million more subscribers in the first quarter.

Negatives also thought Netflix would suffer from the launch of new streaming services such as

Disney

+, HBO Max, Peacock i

apple

TV +. But instead of hurting Netflix, the addition of new streaming services seems to have reinforced the shift among consumers of the real loser in this equation: traditional cable and satellite pay-TV services.

Both the reported results and the company’s forecasts for the March quarter were solid. During the December quarter, Netflix reported revenue of $ 6.6 billion, in line with estimates, with earnings of $ 1.19 per share, below its own forecast of $ 1.35 per share. largely due to a foreign exchange charge related to the company’s euro denomination. debt.

For the March quarter, Netflix recorded revenue of $ 7.1 billion, close to the Wall Street analyst’s previous consensus request of $ 7 billion. Management expects earnings of $ 2.97 per share, well above street forecasts of $ 2.10. According to Netflix, the operating margin for the March quarter will rise to 25%, from 16.6% in the previous year and 14.4% in the fourth quarter.

On Wednesday, at least 17 analysts raised their Netflix stock price targets. Former cautious analysts at UBS and Wells Fargo threw in the towel and improved shares on Buy and Overweight, respectively.

Morgan Stanley analyst Benjamin Swinburne reiterated his overweight rating, raised its target price to $ 700, from $ 650, and exulted that his main thesis on Netflix is ​​in development. “We have long believed that as the business develops and its transition to its own production content develops, this business would move to a sustained and substantial annual cash flow,” he wrote. “That moment has come.”

But Swinburne noted that the shift toward positive free cash flow does not suggest a mature business. In fact, he believes the company’s spending on content is likely to increase by more than 40% in 2021 from the level seen in 2020 as a result of the pandemic, leaving it 20% higher than in 2019. In the meantime, he sees that revenues grow by about 20% in 2021.

“We especially expect continued substantial incremental investment in local foreign film and original production over the next few years,” he wrote.

Morgan Stanley analyst said Netflix is ​​one of the world’s largest investors in entertainment programming and could become the number 1 clear in a few years. In the long run, he said, it wouldn’t be surprising if Netflix moved more openly into new markets, such as live sports, or if it took a “more opportunistic approach” to acquisitions. But for now, he sees additional cash for shareholders.

Pivotal Research analyst Jeffrey Wlodarczak reiterated his Buy rating, raising its target price to $ 750, the highest on the street, at $ 660. Among other things, the analyst said, the company gained more subscribers than expected in all major geographies, including a net increase of 900,000 in the United States and Canada, where it expected only 375,000 net additions. He says the data suggests that the final penetration rate of Netflix services globally could be higher than investors had previously predicted.

“Netflix offers consumers an increasingly attractive entertainment experience on virtually any device, with no ads at a still relatively low cost,” the Pivotal analyst wrote. “The company seems to operate in a virtuous cycle, as the larger its subscriber base, the more it can spend on original content, which increases the potential target market for its service and improves its ability to take on future increases. and dramatically increases barriers to entry, driven by the continued increase in material availability / broadband speeds around the world and the fact that most ground network neutrality regulations allow Netflix is ​​recovering almost for free with the substantial investment that increases the broadband speeds of telecommunications companies.

Bernstein analyst Todd Juenger repeated his Outperform score while raising his target to $ 671 ($ 591). In his note, Juenger compared Netflix to Disney, noting that even while Disney suspended its dividend, Netflix contemplates rewards. He noted that Disney + has less than half the subscribers than Netflix, about half the average revenue per user. He also believes Disney has less consumer appeal and noted that Disney faces up to five years of negative free cash flow, while Netflix makes the cash flow positive.

Juenger said Netflix’s results confirmed many elements of his bullish thesis on the stock market. The company added 37 million subscribers in 2020 and believes they will prove to have a high life value. He said the dropout rate was lower both sequentially and year after year, and that the commitment per member — the amount of time spent watching Netflix content — increased in double digits across all regions. The company was able to raise prices; is driving content investment; average revenue per user increases in the Asia-Pacific region; free cash flow is positive; and the company is withdrawing debts, planning to repurchase shares and increasing the number of subscribers in its domestic market, he noted.

UBS analyst Eric Sheridan raised its rating of shares to buy on Neutral, while raising its target price to $ 650 ($ 540). He thinks the big contributions of the announcement were that Netflix showed strong global subscriber growth, even as competition intensified, and after its strong growth during the first half of 2020. At the same time , he noted, the company continues to increase investment in content and has presented a strong, multi-year history for its margins and free cash flow.

Sheridan considers Netflix to be “the leader in the category in multimedia broadcasts,” saying its “core competencies in both content and technology should create a higher growth and consumption drive for subscribers that drive content spending.”

Write to Eric J. Savitz to [email protected]