Wall Street Praises Netflix's Outlook As Price Increases Begin To Take Effect

Throughout 2017, Netflix, Inc. NFLX was on fire and ended the year higher by more than 55 percent. This may have some investors concerned another year of outperformance in 2018 will be hard to come by, but some of Wall Street's top analysts think otherwise.

The Analysts

Loop Capital Markets' David Miller maintains a Buy rating on Netflix's stock with a price target boosted from $237 to $241 and being named a "best idea for 2018."

Macquarie Research's Tim Nollen upgraded Netflix's stock from Neutral to Outperform with a price target boosted from $200 to $220.

Miller: 2017 Was A 'Taste' Of Will Come

Netflix ended 2017 with 115.7 million total global streaming subscribers, which represented a 23.3 percent year-over-year growth rate, Miller said in a note. While investors have reason to cite this fact as justification for the stock's outperformance, there's more to Netflix's story. Specifically, 2017 was a year when visibility into what a longer-term operating leverage and EBITDA can be. Investors got a "taste of that" in 2017 with EBIT projected to grow by 121.9 percent and EBITDA to increase 104 percent based on the analyst's model.

Looking forward to 2018, Miller is modeling a 133.8 percent growth in EBIT and a 123.7 percent growth in EBITDA as Netflix has now achieved a large enough scale that it no longer has to spend "so prodigiously" in marketing and development as it has in the past. As such, it isn't too late for investors to buy what should be considered "one of the only true large-cap growth stories in Media."

Nollen: Netflix Is 'Miles Ahead' Of Rivals

Netflix has already changed the way that consumers watch TV, but the company is looking to do the same in film, Nollen said in a note. Working in Netflix's favor is the fact that consumers are becoming more annoyed with advertisements in video and Netflix's platform is "miles ahead" of its peers.

Meanwhile, investors "obsession" with Netflix's subscriber growth metrics will likely ease, Nollen said. Specifically, Netflix's second round of price increases is "now coming through" and management is tackling password sharing which could drive even more revenue growth. On the cost side, Netflix is now "more judicious about what it invests" and will save money by lowering its pending on licensed content as it looks to shift its library toward a 60 percent original content profile by 2020.

Price Action

Netflix's negative free cash flow continues to be a risk but investors don't seem to care as there is still a "long runway to P&L," Nollen wrote.

Shares of Netflix were trading higher by more than 4 percent at $199.97 Tuesday morning.

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