Mark Mahaney Speculates on Netflix, Inc. (NFLX) Ahead of Earnings

RBC Capital's Mark Mahaney bets that by 2023, Netflix could have $11 to $17 in EPS within grasp.


As Netflix, Inc. (NASDAQ:NFLX) gets set to deliver is last quarterly print of 2017, RBC Capital’s Mark Mahaney, one of Wall Street’s top performing analysts may not weigh in as bullish as the Street, but remains just as confident in the video streaming giant’s long-term prospects.

Ahead of next Monday’s fourth quarter print, the analyst reiterates an Outperform rating on NFLX stock with a $250 price target, which implies an 11% upside from current levels.

For the fourth quarter, the analyst bets on $3.27 billion in total revenue for the company and $0.41 in GAAP EPS, which may fall under consensus expectations but mirrors the NFLX management team’s EPS guide. Though the analyst is less confident on Netflix’s domestic streaming sub adds with an estimate of 1.25 million for the quarter when up against the Street’s 1.28 million projection, on international streaming sub adds, the analyst’s expectations of 5.05 million shoot past the Street’s 5.02 million forecast.

Mahaney writes, “Based on intra-quarter data points, our proprietary quarterly survey work, and our model sensitivity work, we believe Street Revenue and EPS estimates for the December quarter are reasonable, with modestly more likelihood of upside than downside variance. Street Revenue and Sub estimates for the March quarter also appear reasonable, though we view Street estimates for Q1 Operating Margin (11%) as aggressive. Also, we would expect NFLX to provide full-year Operating Margin guidance. The Street is looking for 11% (up 400 bps Y/Y), which we also believe is aggressive. We believe a more modest 200-300 bps of guided Margin expansion is more likely.”

Down the line, the analyst sees many reasons to bet on Netflix. First, the analyst acknowledges a “dramatic secular shift away from linear TV […] to Internet TV,” with linear TV boasting 1 billion pay TV subs present-day against Internet TV’s 150 million subscribers. “These numbers could meet,” explains Mahaney. Meanwhile, the giant reigns as the ultimate winner on the subscription leaderboard, quite possibly beating out its closes rival by 8 times more subscribers, as Mahaney puts it bluntly: “this is a scale game.” As Netflix is “proving out” both domestic profitability as well as “universal appeal,” all with “pricing power” to boot, this is a tech player whose powerhouse fuel could spell out continued revenue growth rates. Ultimately, in five years’ time, Mahaney predicts the company could attain $11 to $17 in “EPS power.”

Mark Mahaney has a very good TipRanks score with a 69% success rate and a high ranking of #34 out of 4,745 analysts. Mahaney yields 22.3% in his yearly returns. When recommending NFLX, Mahaney garners 49.2% in average profits on the stock.

TipRanks implies an optimistic, yet cautious analyst consensus observing this internet stock giant’s market opportunity at play. Out of 27 analysts polled in the last 3 months, 18 rate a Buy on Netflix stock, 8 maintain a Hold, while 1 is bearish on the stock. The 12-month average price target stands at $225.08, aligning with where the stock is currently trading.