Ahead Of The Report: Can Netflix's Original Content Still Buoy Subscriber Numbers?

Although international losses and investment in original content make Netflix, Inc. NFLX shares appear expensive on traditional metrics, Brean Capital’s Alan Gould believes by 2025 the company could have more than 230 million global subscribers generating an average revenue per user of $15, with EPS of $11.50 and growth at a compound annual growth rate of almost 20 percent.

Gould reiterated a Buy rating on the company, with a price target of $145.

Maximizing Profit

“Netflix is building a content moat and amortizing it over a global direct-to-consumer audience. We project NFLX will be spending $15 billion per year on content in 5 years and $25 billion annually in ten years,” the analyst mentioned.

The company has the largest global subscriber base, which allows it to offer premiere content at the lowest cost per subscriber. In addition, Netflix has minimal distribution costs, and as it produces more content on its own, the company will eliminate studio margins, thereby maximizing profit in the content cycle.

Q4 And Q1 Expectations

With Netflix scheduled to report is Q4 results after the close on Wednesday, Gould expects 5.25 million subscriber additions for the quality, marginally ahead of the guidance and the consensus.

For Q1, the analyst expects the company to guide to 4.64 million net subscriber addition, below the consensus and the year-ago level. However, the domestic subscriber addition expectation might prove conservative given that Netflix has added over 2 million domestics subscribers in the Q1 of the past four years.

On the other hand, International subscriber additions have beaten the guidance in 10 out of 12 quarters.

“In the fourth quarter NFLX released The Crown, which won a Golden Globe award, and Fuller House. The Disney Pay 1 deal has kicked in and NFLX also began allowing subscribers to download programming so it could be watched offline,” Gould went on to say.

The company intends to release 1,000 new hours in 2017, an increase from the 600 in 2016 and 450 in 2015.