Netflix, Inc. (NASDAQ:NFLX) is preparing to deliver its second-quarter financial earnings after the bell Monday of next week and top analyst Michael Graham at Canaccord is angling for stellar original content to strengthen the video streaming giant’s domestic subscriber’s base. Even with subscriber net add forecasts “meaningfully” ahead of consensus, the analyst has every confidence for the giant to achieve his high targets thanks to a particularly “strong Q2 slate.”
Ahead of the print, the analyst reiterates a Buy rating on shares of NFLX with a $175 price target, which represents a 10% increase from where the stock is currently trading. (To watch Graham’s track record click here.)
When it comes to not just a strengthening of growth, but also growth that is “sustainable,” Graham points to “expanded localization efforts increasing international penetration, and long-term building blocks being put in place (like set-top box integration and local content investments)” as roots of Netflix’s success.
For this reason, even if the analyst acknowledges his net add forecasts might come across as a bit “aggressive,” especially on the domestic front, where Graham is calling for 1,070,000 net adds against consensus expectations of 631,000 net adds, the analyst’s vote of confidence backs Netflix’s second-quarter slate, which “has the power to overcome this discrepancy.”
Meanwhile, “For Q2, the typical focus on subscriber growth may be magnified given an expectation that subs may have been pushed from Q1 to Q2 from the later Q1 release slate. While our net add estimates are meaningfully above consensus, we think the company can hit our expectations given a strong Q2 slate. We estimate that there are considerably more original content releases this Q2 vs. last Q2 (75 vs. 29), and that many of them are ‘high profile’ ones like House of Cards and The Get Down,” adds the analyst.
The meat and potatoes of Graham’s bullish stance rests in escalating subscriber momentum, with the analyst concluding, “Overall, we believe that subscribers will come in closer to our numbers and beat guidance, with any positive comments on ‘global margins’ adding to the positivity.”
TipRanks analytics indicate NFLX as a Buy. Out of 28 analysts polled by TipRanks in the last 3 months, 18 are bullish on Netflix stock, 9 remain sidelined, and 1 is bearish on the stock. With a return potential of nearly 6%, the stock’s consensus target price stands at $167.19.
On the other side of the internet sliding ladder of Graham’s confidence hits eBay Inc (NASDAQ:EBAY), with the online auction giant encouraging the analyst in terms of expanding its structured data coupled with marketing in the second half of the year, yet stalling compared to its rivals in terms of rising growth. Therefore, believing shareholder loyalty to the stock will eventually fray should the giant’s comeback not be significant enough soon, the analyst reiterates a Hold rating on EBAY with a price target of $32, which represents a 12% downside from where the shares last closed.
Graham explains, “eBay’s stock has been grinding steadily higher, albeit more slowly than the rest of the Internet sector. That said, patience regarding a return to growth may be wearing somewhat thin, as evidenced by a downward stock move following marginally positive Q1 earnings. While we believe structured data is an important and potentially impactful initiative, the new buyer experience pages are only being exposed to a single-digit percent of traffic. Given the relatively low growth, we remain somewhat cautious.”
Moreover, when it comes to the stock’s risk factor, the analyst highlights seller apprehension in the near-term. “There was a bit of noise in Q2 and going into Q3 that has varying degrees of risk, but nonetheless we would like to outline them given eBay’s transitional period. Some sellers have found recent updates and tests disruptive. This could very well be the minority being the most vocal but we heard more pushback than normal this quarter,” explains Graham.
Ultimately, Graham contends, “We recognize the balancing act, but believe the slower-than-expected pace is evidence that it’s harder than originally anticipated and could increase churn unexpectedly.”
TipRanks analytics demonstrate EBAY as a Buy. Based on 15 analysts polled by TipRanks in the last 3 months, 7 rate a Buy on eBay stock while 8 maintain a Hold. The 12-month average price target stands at $38.00, marking a 4% upside from where the stock is currently trading.