What 2 Analysts Liked About Netflix's Market-By-Market Breakdown

Netflix Inc NFLX released a cache of data on global operations earlier this week. The report, which captures performance metrics from 2017 through 2019, was generally celebrated.

The Ratings

Goldman Sachs analyst Heath Terry maintained a Buy rating on Netflix with a $400 price target.

Pivotal analyst Jeffrey Wlodarczak maintained a Buy rating and raised his target from $400 to $425.

The Goldman Sachs Thesis

Goldman Sachs cited a few key takeaways from the report. First, Canada penetration is on par with that of the U.S. Second, Latin America and Europe, Middle East & Africa (EMEA) claim a higher proportion of international subscribers than expected (79%).

“Measurements of both broadband households and wireless subscribers in each of these regions support a meaningful growth runway for further subscriber penetration, even in developed international markets,” Terry wrote in a note.

Third, international subscriber growth was of higher-quality than Goldman Sachs had expected. Markets with higher average revenue per user (ARPU) boasted the strongest growth. These figures lead to the analyst’s fourth takeaway that the Asia Pacific segment should record faster revenue and subscriber growth than any other region through 2024, with the EMEA market in close second.

Finally, platform price hikes have affected ARPU in the EMEA market significantly less than it has the Latin America and U.S. markets.

“We continue to believe that consensus expectations for Netflix subscriber growth and related financials in 2020 and beyond are too low,” Terry wrote. “As pricing stabilizes, competitive concerns prove overblown, growth continues to benefit from investments in content, and cash flow turns positive, we expect shares of NFLX to continue to outperform.”

The Pivotal Thesis

Based on Netflix’s numbers, Pivotal increased its subscription and ARPU forecasts, particularly in the Asia Pacific and EMEA markets. Wlodarczak anticipates Netflix subscriber growth of 29 million in 2020 — in spite of rising rivalries.

Even as short interest mounts, the analyst is unconcerned about competition from Walt Disney Co DIS or Apple Inc. AAPL.

“We frankly believe the heavy Disney discounting is a mistake that will likely show up in very high subscriber churn as they try to move consumers even to their relatively low monthly pricing,” Wlodarczak wrote. “Disney+ to us appears firmly aimed at households with kids less than 13 (a not inconsequential 33M U.S. households) but is certainly not a NFLX killer.”

He suspects Apple is at least a few years from posing a legitimate threat.

“In the end, DTC/OTT services globally still in our view have material room for growth left (boosted significantly by integration into traditional distributor bundles) in terms of both subscribers and time spent as they continue taking share from traditional media, and NFLX should continue to lead the charge,” Wlodarczak wrote.

Price Action

At time of publication, Netflix shares traded up 2.6% at $329.20. The stock is up more than 12% over the last month.

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