As internet companies Facebook Inc (NASDAQ:FB) and Netflix, Inc. (NASDAQ:NFLX) ramp up strategic moves, analysts line up to report on these developments. The Facebook F8 conference generated positive views for Cantor analyst Youssef Squali, and expectations for Netflix’s upcoming Q1 results and guidance trigger a rating from MKM Partners analyst Rob Sanderson. Let’s take a closer look.
Facebook’s F8 conference this week delivered a few exciting announcements. Following the conference, Youssef Squali of Cantor enthusiastically reports about the company’s improvements planned for its Messenger app, and maintains a Buy rating and $140 price target on the stock .
The analyst believes this instant messaging app is one of a kind, as it manages to build what he calls a ‘Richer Eco-System.’ He explains, “Messenger already boasts over 900M members (and growing fast) who use the platform for text messaging and voice calling.” The analyst proceeds to explain the noteworthy improvement, chatbots. He states, “Chatbots are apps that are tightly integrated into the fabric of Messenger and which allow users access to commerce, transportation, customer services, etc. without having to leave the platform. The company announced 40 partners that are already integrated with Messenger, including Uber, 1-800 Flowers, and eBay.” The analyst is very optimistic about this improvement, noting, “We believe management is building Messenger into a ‘portal,’ which will create an ecosystem that keeps its massive user base within its walls, engaged whether these users are communicating with friends and family, consuming content, communicating with businesses or transacting (preferably doing all four!).”
The analyst briefly reviews the functionality of Messenger, commenting, “Messenger has the potential of becoming a material third leg of the ‘monetization stool’ for Facebook, a potential not reflected in our estimates currently.” Squali goes on to explain that the app will not significantly overlap with Facebook, explaining, “While the lines may get a bit blurry between Facebook and Messenger, and there may very well be some cannibalization between the two platforms since both are competing for our time, we view the two as offering distinctly different value propositions, and any cannibalization should be viewed within the broader goal of keeping users engaged within the Facebook family of brands.”
According to TipRanks, Youssef Squali is ranked #21 out of 8,885 analysts. Squali’s predictions are profitable 67% of the time and deliver an average return per recommendation of 14.8%. Among Squali, 34 other analysts gave Facebook a Buy rating, 3 remained on the sidelines and one analysts gave the stock a Sell rating. Overall, the stock has a 12-month average price target of $134.65, marking a 21.84% upside from where shares last closed.
As Netflix prepares to publish its Q1 results and future guidance on April 18, analysts weigh in with their expectations for the release. One MKM Partners analyst, Rob Sanderson, weighs in on the video streaming company ahead of earnings, reiterating a Buy rating with a price target of $145.
Sanderson focuses on Netflix’s churn rate as it plans to increase prices for ‘grandfather’ subscribers, who had previously been excused from the recent price hike. He states, “Grandfathered subscribers will see prices increase to $9.99 from $7.99 beginning in May. This is expected to impact 15-20mn U.S. subscribers. While a $2 per month increase does not seem like a large amount, a 25% increase does.” He continues, “We think the value-proposition of NFLX is still very high even at $10 or higher.” In Sanderson’s view, this isn’t a permanent condition for the company, commenting, “We would not be surprised to see cautious guidance for domestic subs to embed some elevated churn but this would be transitory.”
As Netflix’s international ramp has somewhat mixed criticism on developing and developed economies, the analyst believes there’s a slow start for every new region the company enters but sees potential upside in the long run. He states, “When NFLX enters a new region, there is an initial subscriber lift but we think it is typically years three through seven that contribute peak levels for subscriber additions.” Sanderson breaks it down to two different types of economies, explaining, “Of the developed economies, we estimate that only 20% of the NFLX international footprint has entered its peak contribution years. Another 30% should be entering its peak contribution cycle by around year-end with 25% tranches in each of the two following years.” He continues, “Developing economies are a wildcard, but Latin America is a bullish indicator. We estimate that LatAm is adding about 2mn subs per year (from 67mn broadband homes) in its fourth year. This is a region where many factors were stacked against NFLX yet the adoption ramp is proving to be a success.”
According to TipRanks, Rob Sanderson has a 48% success rate, delivering an average loss per recommendation of (3.8%). Nineteen additional analysts gave NFLX a Buy rating, twelve remain on the sidelines and four recommended a selling the stock. All price targets average at $122.89, marking a 12.07% upside from where shares last closed.