Why This Netflix Analyst Says Streaming Platform Will Beat Q1 Net Subscriber Guidance

Netflix Inc NFLX is one of the key beneficiaries of social distancing and stay-at-home orders necessitated by the coronavirus pandemic, according to Credit Suisse.

The Netflix Analyst

Douglas Mitchelson maintained an Outperform rating on Netflix with a $440 price target.

Benzinga is covering every angle of how the coronavirus affects the financial world. For daily updates, sign up for our coronavirus newsletter.

The Netflix Thesis

Netflix remains on track to materially surpass its first-quarter net subscriber adds guidance, Mitchelson said in a note, making the deduction from a positive inflection in app downloads.

Latin American March downloads have surpassed seasonally strong fourth-quarter levels, EMEA March downloads are approaching holiday peaks of the recent past and Asia Pacific March downloads have exceeded all prior fourth-quarter peaks, the analyst said.

North American downloads were higher in March for four years straight, he said. 

Credit Suisse raised its net adds expectations for the quarter to 9.65 million versus the 9.604-million increase posted one year ago. Netflix is guiding to 7 million additions. 

Netflix is unlikely to pursue price hikes this year, Mitchelson said, adding that subscribers are showing a reluctance to move higher and that currency is a headwind.  

Despite Netflix leading the industry in compensating talent as well as production workers during the disruption, the analyst said he expects lower programming expenses. 

"Marketing should benefit from less competition from sports/pay TV and lower ad pricing, while other cost categories should see mitigation." 

Credit Suisse lowered its revenue estimates for 2020 and 2021 while maintaining EBIT estimates for both years largely unchanged due to lower operating expenditures. 

Netflix shares have benefited from an accelerating shift to streaming given a price advantage and fewer consumer leisure options, Mitchelson said. 

Credit Suisse sees risk around second-quarter guidance and said Netflix may view the first quarter as a pull-forward of demand.

Streaming will be further tested in the third quarter, as sports are likely to return and consumers will return to work and out-of-home activities, the analyst said. 

"In the meantime, the trend towards streaming is even more clear and improvements in Asia trends could prove, in retrospect, a key inflection point for Netflix." 

NFLX Price Action

Netflix shares were down 2.44% at $348.60 at the time of publication Wednesday. 

Related Links:

Why This Netflix Analyst Says Coronavirus Outbreak Is Negative For Streaming Platform

Why BofA Says Disney+ Numbers Are A Positive For Netflix