Netflix’s More Expensive Content Will Not Erase Its Long-Term Challenges
Netflix, Inc. (NASDAQ:NFLX) excited its investors yesterday with news that its prices were about to take a hike, sending shares on a 5% wave. The idea is that more expensive Netflix plans will garner promising revenue results for the video streaming platform. Netflix’s popular standard plan will jump from $9.99 to $10.99 and the premium plan that allows 4k viewing on four screens simultaneously will see a rise from $11.99 to $13.99. Netflix’s plan without HD or ultra HD viewing will continue to be $7.99.
While Wedbush analyst Michael Pachter believes the tech player’s revenue will see a bump, he remains bearish on the bigger picture at hand between cash burn concerns and a competitive atmosphere for the international market.
As such, the analyst reiterates an Underperform rating but boosts the price target from $82 to $88, which represents a 55% downside from where the stock is currently trading. (To watch Pachter’s track record, click here)
Pachter highlights, “Notwithstanding its domestic price increase, we expect Netflix to burn cash to fund content acquisition for many years. International profits may remain elusive due to competition for content and subs, and the price increase is likely to cause a deceleration in domestic growth. Negative FCF makes DCF valuation impossible.”
Additionally, “We are increasing our revenue estimates to reflect the price changes, and expect incremental top-line growth to be absorbed by higher cost of revenues,” notes the analyst, who anticipating “minimal attrition” maintains his domestic subscriber expectations and likewise maintains his EPS forecasts. For the fourth quarter, the analyst has raised his expectations for revenue from $3,141 million to $3,226 million, and brings up his revenue estimate for the year from $11,543 million to $11,627 million.
Looking ahead to 2018, the analyst projects $14,817 million in revenue, compared to his prior estimate of $14,105 million.
On a positive closing note, the analyst believes “[…] many Netflix subs will opt for Netflix’s higher-profile content over expedited shipping and other perks from Amazon. Similarly, we do not expect an extra $1 – 2 per month charged by Netflix to cause a migration away from the service and towards Amazon Prime and its annual upfront payment of $99.” Overall though, Pachter stands by his bearish viewpoint: “However, at a higher price point, we think that new subscribers will be more difficult to attract, and we expect net additions to be slightly down year-over-year in 2018.”
With the video streaming giant expected to post its third quarter print after the bell tolls Monday, October 17th, the analyst forecasts revenue of $2,979 million, ahead of the guide of $2,969 million, and EPS of $0.33, a cent over Netflix’s outlook of $0.32. Additionally, the analyst looks for domestic streaming sub net adds to hit 0.85 million and international streaming sub net adds of 3.75 million. Pachter does believe there could be upside to his subscriber expectations for the third quarter, wagering that the price lifts could be signs of “confidence” from the NFLX team for a stellar third quarter and a prospectively impressive fourth-quarter subscriber growth guide.
Most on Wall Street would care to disagree with this bear’s end verdict, as TipRanksanalytics exhibit NFLX as a Buy. Out of 35 analysts polled by TipRanks in the last 3 months, 24 are bullish on Netflix stock, 10 remain sidelined, and 1 is bearish on the stock. The stock’s consensus target price stands at $195.67.
Patience Will Be a Rewarding Virtue for Tesla Bulls
Tesla Inc (NASDAQ:TSLA) hearkens back the timeless classic fable where a slow, but steady tortoise ultimately wins the race against the seemingly fast hare- a morale that Gene Munster – weighing in from his research-driven, venture capital firm Loup Ventures – defends as compelling for Tesla’s “waiting game” story arc.
True, the analyst acknowledges that the electric car giant’s “model 3 production miss sounds bad,” as on Monday, CEO Elon Musk’s company revealed underwhelming third quarter delivery and production results for the third quarter. The shortfall stems from a “4.8k order push out for the Model X and S” into the fourth quarter coupled with the Model 3 facing a “manufacturing bottleneck,” explains the research analyst. All the same, this absolutely “doesn’t change the magnitude of opportunity” awaiting Tesla investors who can stand to be patient just a bit more, as Munster continues to cheer from Musk’s corner.
“These results further validate our thesis that EV and autonomy will take longer than most think, but eventually will be more impactful than most can imagine. Our optimism around Tesla’s ability to capitalize on the shift to EV, autonomy, and renewable energy has not changed,” underscores Munster, who still angles for Tesla’s mass-market Model 3 to see a “breakout year” in two years: delivering 359k vehicles.
However, the analyst acknowledges the news will not bode well for positive sentiment, adding “fuel” to fire of Model 3 ramp apprehensions: “The real problem is that tonight’s results chip away at investor Model 3 production confidence.” With the
Munster’s conviction for Tesla’s opporunity continues to be as strong as ever, as the analyst concludes, “While we believe Model 3 production will largely be a guessing game over the next few quarters, and could produce future disappointments, it’s important to note Tesla has over 500k net reservations for the Model 3, and we remain confident that Model 3’s value will stoke demand for the next several years.
Not all analysts on the street voice Munster’s bullish forecast for the electric car giant, as TipRanks analytics showcase TSLA as a Hold. Based on 21 analysts polled by TipRanks in the last 3 months, 6 rate a Buy on Tesla stock, 7 maintain a Hold, while 8 issue a Sell on the stock. The 12-month average price target stands at $310.93, marking a 12% downside from where the stock is currently trading.