Cantor Says Netflix Is Still A Buy, Despite 'Un-Grandfathering' And Tempered 2Q Expectations

Cantor Fitzgerald’s Youssef Squali expects Netflix, Inc. NFLX to report a generally in-line quarter for 2Q16, with robust underlying subscriber growth.

Squali maintains a Buy rating on the company, with a price target of $130.

2Q Expectations

The analyst mentioned that the company was likely to have witnessed robust underlying subscriber growth trends, despite the tougher year-on-year comps internationally and the ongoing "un-grandfathering."

Squali believes that while management did temper the expectations for 2Q, the huge global launch in January and the healthy slate of originals in 2Q16 will help offset these drags.

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Going forward, the analyst expects the FX headwinds and the maturing U.S. market to keep the guidance conservative.

The analyst expects 2.374 million international net additions for the quarter, ahead of the guidance and the consensus.

Subscriber Additions

In the United States, Squali expects 0.5 million net streaming additions, in line with the guidance and mostly inline with the consensus expectations.

The analyst pointed out that the domestic growth estimates reflect 40 percent penetration of U.S. broadband households in the United States, typical seasonality for 2Q and caution regarding the ongoing un-grandfathering to $9.99 per month.

However, the churn is likely to be limited by the strong slate of originals, which should help drive new subscribers.

The analyst cautioned that while FX was negligible in 2Q, it could pose a headwind in 2H16.

“We remain constructive on NFLX long-term, given the company's leadership position on OTT, scale, unmatched value proposition and singular focus,” Squali stated.

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