Netflix, Inc. (NASDAQ:NFLX) viewers are watching more “library” titles from “frenemies” like Fox, CBS, and the CW than the video streaming giant’s own content. However, will this ultimately stall the stock’s trajectory, as the company keeps racking up 5 million domestic net subscribers annually? Right now, whether or not Netflix’s business model’s success is contingent upon content from other programming appears to not be in the way of the giant securing the high range of its 60 to 90 million domestic target within the next eight years.
Moffett-Nathanson analyst Michael Nathanson upon breaking down an in-depth analysis of the media companies on Netflix’s roster: Nielson household stats reveal that 75% of HBO viewing stems from the strength of its films as well as its documentaries, with original content from Showtime likewise circling at muted percentage levels when looking at total viewing data.
“CW, owned by CBS and Time Warner’s Warner Brothers, has more valuable current shows on Netflix than any other producer,” notes the analyst, who created a “ratings power” model for each database title, including shows the likes of “The Vampire Diaries” and “Supernatural.” “Fox is second, Disney is third, CBS is fourth,” writes Nathanson, who finds that the video streaming giant’s programming ranks as just fifth on the list of most watched on the platform.
Yet, Nathanson finds himself musing: “Why does this matter?” Though the evolving dynamics of streaming or subscription video on demand (SVOD) library content paired with over-the-top (OTT) broadcast/technology product cutthroat competition could come to put Netflix’s subscriber trends to a true test, “this could take a while to play out,” the analyst predicts- whether “Netflix bulls […] dispute this idea” or not.
Overall, “While we can debate how quickly the margins will ramp depending on programming spending levels, Netflix is now trading near its all-time high in terms of next-twelve-months consensus Price to Sales multiple of 6.2x, which is more than one standard deviation above the past five years […] However, the market is looking much further down the road […] Assuming the international business will carry the same value (again something that comes with lots of Blue Sky assumptions), this would lead to a $252 target price. While we think this case is far from realistic, until subscriber and/or pricing growth is challenged, many investors will still value Netflix under these long-term assumptions,” contends Nathanson.
As such, the analyst maintains a Neutral rating on NFLX stock while lifting the price target to $140, which represents a 24% downside from current levels. (To watch Nathanson’s track record, click here)
Though the analyst is playing it safe when it comes to the video streaming giant’s prospects, how does his vote of caution weigh against other analyst opinions on Wall Street? TipRanks analytics exhibit NFLX as a Buy. Based on 33 analysts polled by TipRanks in the last 3 months, 22 rate a Buy on Netflix stock, 10 maintain a Hold, while 1 issues a Sell. The 12-month average price target stands at $194.06, marking a nearly 5% upside from where the stock is currently trading.