3 Things That Could Make Netflix Shares More Compelling At The Current Price

Netflix, Inc. NFLX's third-quarter earnings report was impressive yet not strong enough for Credit Suisse's Stephen Ju to become bullish on the stock. The analyst maintains a Neutral rating on Netflix's stock with a price target lowered from $210 to $209.

Netflix's plans to increase prices for international users by one market at a time does result in upward revised revenue estimate for 2018, but at the same time, it is offset by higher content spend, Ju commented in a research report (see Ju's track record here). While investors shouldn't necessarily be surprised with the company's incremental investments on content it does lower the analyst's valuation model.

Specifically, the company's content acquisition guidance implies a range of $10.85 billion to $12.4 billion in 2018.

There are three factors which would for the analyst to revise his stance on Netflix's stock in the future:

1. Faster-than-expected realization of operating margin targets and a switch in focus away from regional target operating margins toward an overall consolidated operating margin.
2. Acceleration of consumer adoption in international markets from the proliferation of connected devices.
3. Greater-than-expected moderation of content spend.

Bottom line, until Netflix is able to show improvements in these three metrics the risk to reward profile on the stock remains balanced at this point.

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