More Subscriber Upside Likely For Netflix In Q3

After a blowout second quarter, Piper Jaffray is expecting big things from Netflix, Inc. NFLX in the current quarter as well. On Monday, analyst Michael Olson said Google search data suggests Netflix could easily exceed its subscriber growth targets when it reports earnings next month.

Piper Jaffray uses Google AdWords tools to track the use of Netflix-specific keywords that the firm has determined are closely correlated to the Netflix subscriber count.

According to Olson, search data suggest the potential for 16-percent domestic subscriber growth in the third quarter compared to consensus estimates of only 10.7-percent growth. International search numbers are even better. Consensus is calling for 42-percent year-over-year international subscriber growth, but Piper Jaffray’s search data suggests 78-percent growth.

While Olson warns traders that search data isn’t a totally reliable predictor of subscriber growth, the Q3 numbers are so good that at the very least they suggest Netflix could surprise to the upside. The firm’s search data has historically had a 0.96 correlation to actual subscriber counts over the past 20 quarters, with a 2-percent standard error on domestic numbers and a 10 percent standard error on international numbers.

“We believe Netflix is well positioned to have >100M int'l subs by 2020, along with ongoing op margin expansion as the company spreads content and marketing spend over a growing installed base,” Olson wrote.

Piper Jaffray predicts Netflix will be able to ride its subscriber growth to $6.18 in EPS by 2020.

Piper Jaffray maintains an Overweight rating and $215 price target for Netflix.

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