3 Reasons Why BMO Capital Markets Upgraded Netflix After Bumpy Q2

Netflix, Inc. NFLX's Monday earnings report doesn't show any material change in the streaming platform's long-term story — and the stock has multiple underappreciated catalysts, according to BMO Capital Markets.

The Analyst

Analyst Daniel Salmon upgraded Netflix from Market Perform to Outperform with an unchanged $400 price target.

The Thesis

Exiting Netflix's earnings report, the company boasts three catalysts that it more attractive, Salmon said in the upgrade note. (See the analyst's track record here.) 

• Netflix's Indian growth story has only begun with a ramp of localized content, Salmon said. This should result in large growth, although not necessarily not to the extent of management's commentary of 100 million new users, he said. Japan, to a lesser extent, is set contribute more absolute subscriber additions than India and is a large market that investors are likely overlooking, the analyst said. 
• An industrywide shift of content creators that are now focusing on their own streaming platform at the expense of Netflix's library has likely been anticipated by Netflix management for years, Salmon said. The company hould be able to manage this trend, and investor concern could be skewed toward overreaction, he said. 
• Netflix continues to "quietly" build its licensing revenue as it is tests small licensing opportunities — "Stranger Things" ugly sweaters, for example. While this revenue source is immaterial today, Netflix is likely to monetize its owned content over time until it becomes a high-margin contribution to the bottom line, Salmon said. 

Price Action

Shares of Netflix were trading lower by 8.6 percent at the time of publication.

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