Analysts provide commentary on social media giant Facebook Inc (NASDAQ:FB) and video streaming leader Netflix, Inc. (NASDAQ:NFLX) following the F8 developer conference and Q1 earnings release, respectively. Both analysts alter their price targets in two different directions, as one analyst believes F8 updates represent catalysts, while the other cites caution on Netflix’s disappointing subscriber guidance.
Needham analyst Laura Martin weighed in on Facebook following the firm’s F8 developer conference last week.
Most notably, the company released chat “bots” inside the Messenger app that lets brand replace a human to communicate with customers in conversations ranging from purchases to customer support. Second, Facebook Live is now available on any camera instead of just mobile and PC, allowing a user to upload a picture from any device. Third, the company provided VR updates, in addition to its Oculus Rift VR headset, such as the unveiling of a 360-degree, open-source camera. Fourth, the company introduced an Account Kit allowing users to log in and join Facebook with only a phone number instead of emails and passwords. Fifth, Zuckerberg enlightened conference-goers on Aquila, a drone that can beam internet to developing countries, as well as Terragraph and ARIES, which do so on the ground. And finally, the company revealed updates to its “save” feature with a new button on Facebook Pages.
Following the conference, Martin increased her estimates for 1Q16 and FY16. The analyst provided updated revenue and non-GAAP EPS for 1Q16 of to $5.25 billion, up 5% from her previous estimates, and $0.62, up 4% from her previous estimates, respectively. For FY16, the analyst increased her revenue estimates to $25.63 billion, up 5% from her previous estimates, and non-GAAP EPS of $3.12, up 8% from her previous estimates. As result of the various updates the company provided, the analyst provides hopeful sentiment on its various initiatives and what they mean for the stock. She states, “We are optimistic about FB’s new monetization efforts for FB Messenger, as well as several new revenue streams targeting TV ads, payments, and eCommerce. We believe that the bulk of online ad growth will be in mobile and FB garners 75% of mobile advertising dollars.”
As a result of conference updates and her subsequent estimate increases, the analyst maintains a Buy rating on the company and raises his price target to $130 from $115.
According to TipRanks, Laura Martin is ranked #39 out of 3,895 analysts. She has a 62% success rate recommending stocks with an average return of 18.7% per recommendation.
Out of all the analysts who have rated Facebook in the past 3 months, 90% are bullish, 2.5% are bearish, and 7.5% remain on the sidelines. The average 12-month price target for the stock is $135.62, marking a 21% upside from where shares last closed.
Analyst Benjamin Swinburne of Morgan Stanley gave his two cents on Netflix following the firm’s 1Q16 earnings report. The company reported generally positive metrics, such as better than expected U.S. net adds resulting from more original content. The analyst explains, “new member growth ahead of Netflix’s own expectations gives us confidence in its ability to continue to grow in a highly competitive market already at nearly 50% broadband penetration.” The analyst also notes company guidance of 500K U.S. net ads compared to his 150K estimate. However, the analyst claims that the company’s “long term earnings power” depends on subscriber growth and pricing power.
While the company posted a strong Q1, including 4.51 million international new subscribers, investors could not take focus away from disappointing guidance for next quarter. The company predicted only 2 million international new subscribers for next quarter, far below the analyst’s expectation of 3.05 million. Although Swinburne acknowledges that 2Q15’s launch in Australia/New Zealand may have been stronger than originally thought, adding 600K net adds from this region alone, “the implication…is that the underlying growth in other int’l markets was slower.” However, the analyst is hopeful that Netflix can accelerate slow growth in international markets as it has in the UK and Brazil. Swinburne acknowledges increasing competition in the company’s European market but believes “success navigating these challenges in the US along with the continued success of its originals [marks] evidence of its long-term potential overseas.”
Finally, the analyst addresses the company’s “skimming markets;” the 130 new countries where Netflix provides limited features. In order to generate growth from these markets, the analyst expects Netflix to “improve the product offering and perhaps localize in some areas to drive acceleration,” predicting these changes in the second half of 2016. In order to drive overall international growth, the analyst believes the company should increase its focus on original content as well as improve “distribution, billing, and marketing” for its skimming markets. The analyst believes the dip in shares following earnings represents a compelling entry point, as he expects to see an increase in subscribers in the third quarter.
The analyst reiterates his Overweight rating on the company and reduces his price target to $125 from $135.
According to TipRanks, Benjamin Swinburne has a 63% success rate recommending stocks with an average return of 11.3% per recommendation. Out of all the analysts who have rated NFLX in the past 3 months, 62% gave a Buy rating, 10% gave a Sell rating, and 28% remain on the sidelines. The average 12-month price target for the stock is $119.43, marking a 27% upside from where shares last closed.