Wall Street Weighs In On Netflix Following Blowout Quarter

Netflix, Inc. NFLX blew Wall Street’s expectations out of the water Monday when it reported first-quarter subscriber growth of 7.41 million, well above consensus estimates. Earnings guidance also came in higher than expectations.

As a result, Netflix traded around $334.56 late Tuesday morning, up 8.7 percent on the day.

A number of analysts have weighed in on Netflix stock following the big numbers. Here’s a rundown of what some analysts had to say.

Voices From the Street

Canaccord Genuity analyst Michael Graham said another big quarter leaves analysts in a difficult position considering the huge run in Netflix’s stock. “We find ourselves in a familiar place with NFLX stock, having to stretch our forecast and valuation framework to justify a higher target price, while feeling very confident in the near- and mid-term fundamental outlook,” Graham wrote.

Growing And Growing

Bernstein analyst Todd Juenger said he values Netflix based on a future “milestone state” of 300 million subscribers, and the latest quarter moves that milestone target date up from 2029 to 2027. “We believe Netflix is much more likely to deliver significantly more than 300mm subs (or deliver 300mm sooner, same thing), at a higher ARPU, than the base case described,” Juenger wrote.

KeyBanc analyst Andy Hargreaves said the impressive subscriber growth numbers highlight the efficiency with which Netflix is investing in its content and international expansion. “1Q results demonstrated continued investment efficiency that we believe can drive upside to subscriber expectations in the medium term while improving incremental margins and expanding long-term profit potential,” Hargreaves wrote.

BTIG analyst Rich Greenfield said Netflix’s growth numbers are also a reflection on the traditional media landscape. “It just continues to demonstrate that legacy media ecosystem is collapsing faster than people realize,” Greenfield wrote.

BMO Capital Markets analyst Daniel Salmon said churn, marketing effectiveness and subscriber leverage have all been on the rise, which is good news for Netflix bulls.

“The focal point for disruption of the traditional TV ecosystem, we believe NFLX shares properly value the opportunity and the inherent risks of this position and would look for incremental news (e.g., faster-than-expected international traction) to become more positive on the stock,” Salmon wrote.

Cash Flow

Buckingham Research Group analyst Matthew Harrigan said Netflix is breaking away from competitors in terms of original content, but the company still expects several more years of negative free cash flow. “Despite its compelling business model, we still view NFLX shares as fully valued with 2% downside from yesterday's close,” Harrigan wrote.

Morgan Stanley analyst Benjamin Swinburne said Netflix’s cash burn will likely peak in 2018. “If Netflix continues to outperform its own expectations for net adds, it is even more likely it will begin expanding margins more rapidly and reducing its cash burn levels,” Swinburne wrote.

Stifel analyst Scott Devitt said Netflix will generate its first positive free cash flow in 2021. “In order to bridge to self-funding status and maintain a comfortable cash balance, we expect Netflix will have to raise an additional $8B in total debt financing between now and 2020 (with debt totaling $14.5B in 2020),” Devitt wrote.

Wedbush analyst Michael Pachter says investors should avoid Netflix stock until the company demonstrates that it actually can produce positive cash flow. “In order to generate profits at a level suggested by its share price, Netflix will have to grow dramatically and raise prices significantly,” Pachter wrote.

Ratings And Targets

Wall Street is mostly bullish on Netflix after the monster quarter. Given the stock’s sky-high valuation, however, some analysts are more bullish than others:

• Canaccord Genuity has a Buy rating and $350 target.
• Bernstein has an Outperform rating and $372 target.
• Buckingham Research Group has a Neutral rating and $301 target.
• Morgan Stanley has an Overweight rating and $370 target.
• Stifel has a Hold rating and $345 target.
• Wedbush has an Underperform rating and $125 target.
• BMO has a Market Perform rating and $324 target.
• KeyBanc has an Overweight rating and $385 target.

Related Links:

Buckingham Sidelined On 'Fully Valued' Netflix After Strong Q1 Print

A Netflix Bear Stays In The Woods Ahead Of Streaming Service's Q1 Report

Photo courtesy of Netflix.