Analysts Tackle Online Giants: Netflix Inc. (NFLX), Snap Inc (SNAP), Facebook Inc (FB)

Expanding International Markets is Key to Spurring Netflix Growth

Netflix, Inc. (NASDAQ:NFLX) stock rose significantly throughout 2Q in response to a dramatic increase in both domestic and international subscribers, which smashed the company’s guidance by 2 million subscribers. Meanwhile, the video streaming giant has officially shot past the international crossover point, nabbing 52 million international subscribers vs. 51.9 million domestic subscribers. What caused this exponential 2Q growth? Netflix previously announced that the driving factor was the company’s strong slate of content, which included 14 new seasons of global original series, 13 original comedy specials, six original documentaries, two original documentary series, nine original feature films, and seven original series for kids.

Top analyst Scott Devitt of Stifel believes that Netflix growth will continue, leading him to raise his estimates for domestic and international net adds, as he likewise commends “healthy customer acquisition trends across all major markets.”The analyst writes, “We are raising our 3Q forecast for domestic/international net adds to 753k / 3.65mm from 699k / 3.34mm previously as Netflix continues to sustain a healthy rate of growth domestically and drive greater levels of penetration across international markets. We forecast revenue to reach $11.5B (+31% y/y) with an operating margin of ~7% ($805mm GAAP operating income) for the full year 2017.”

Devitt adds that growth will maintain its steady surge despite the cash burn rate related to content creation, calling it “a driving factor for Netflix’s current cash burn rate, as the company now expects negative FCF of $2B to $2.5B for 2017.” The analyst also expects “the company to continue to access the debt markets going forward as it seeks to fund its capital-intensive global content strategy” as it just completed a €1.3 billion bond offering.

As such, Stifel maintains a Buy rating on NFLX while lifting the target price to $200 with the expectation that the company will achieve “greater levels of penetration across international markets.” (To watch Devitt’s record, click here.)

TipRanks analytics indicate NFLX as a Buy. Over the past 3 months, TipRanks polled 27 analysts regarding Netflix and has found 27 to be bullish, 6 neutral and 1 bearish. The consensus target price stands at $191.88 representing a 4% upside from current market levels.

Snap Hits the Big Screen  

Snap Inc (NYSE:SNAP) is taking its next big step by teaming up with NBC to provide users and viewers with an innovative news format that is likely to resonate with younger age groups. Nick Ascheim, who heads the NBC News digital department noted that the younger generation is getting their news from viral videos and less from traditional formatting. The new twice-daily broadcast via Snapchat “Stay Tuned” will feature top national and international stories on everything from politics to pop culture in short four-to-five minute segments lasting two-to-three minutes. Analyst Brian White of Drexel Hamilton notes that with company growth almost grinding to a halt, the $100 million Time Warner deal can have a positive impact.

White feels that “more original content on the Snapchat platform will increase user engagement, thus driving more advertising revenue over time.” After watching the morning edition of the news program, the analyst opines, “Overall, we found the show’s informal and concise format to be both refreshing and informative. Essentially, a quick and entertaining way to get the top news stories of the day.” The analyst believes that by throwing NBC into the mix, Snap can end its stagnation and provide investors a more positive outlook over the next twelve months.

As such, White reiterates a Buy rating on SNAP with a target price of $30, which implies a 102% upside from current levels. (To watch White’s record, click here.)

TipRanks analytics indicate SNAP as a Hold with a target price of $20.85 representing a 39% upside from current market levels. The rating and target price was formulated after polling 29 analysts with 11 bullish, 14 neutral and 4 bearish.

Facebook Poised to Continue Momentum

As earning season goes into full gear, Facebook Inc (NASDAQ:FB) is set to release second-quarter results on Wednesday, July 26. Ahead of the impending report, many investors are wondering if the second-quarter will reflect or even build on the tremendous 49% year-over-year top line revenue growth during the first-quarter. Based on meetings with industry players, analyst Ralph Schackart of William Blair is optimistic that the second quarter will meet the Street’s expectations calling for $9.01 billion in advertising revenue, up 44% year-over-year.

Last year, Facebook management had feared of a potential slowdown in ad-load growth, which would, in turn, lead to a loss of revenue. However, Schackart opines that this is not the case. The analyst notes, “Facebook’s ad revenue has beat expectations by an average of about 4% over the last eight quarters, and we believe the buy-side is a point or two above the sell-side’s ad revenue growth rate for the second quarter of 2017.” To strengthen his analysis, Schackart interviewed a Facebook ad buyer intra-quarter who “experienced a very strong quarter with spending increasing 15%-plus sequentially.”

Shackart adds, “Notably, this buyer said her company saw exceptionally strong client growth during the second quarter […] She noted continued strong performance with Facebook’s app installs, lead generation, and dynamic ads.”

Moreover, “This buyer thinks dynamic ads are the backbone Facebook will build upon for its ad formats […] and she believes Facebook will ultimately move dynamic ads into the auto vertical, though no expected time frame was provided,” notes the analyst, who likewise points out the buyer sees a rise in video spending as all the more advantageous for the social media giant.

With agency feedback praising core Instagram as “working very well,” with “Facebook’s long-term strategy is to monetize longer-form content on a large scale,” the analyst concludes underscoring that the industry participant from the expansive, digital-focused agency ventures, “While early, he believes long-form video will allow Facebook to further differentiate from other similar media formats.”

As such, Schackart reiterates an Outperform rating on FB and believes “that shares have near-term upside to roughly $185 per share [and…] Facebook can be a $200-plus stock based on 2018 valuation.” (To watch Schackart’s track record, click here.)

TipRanks analytics indicate FB as a Strong Buy. Out of 32 analysts polled by TipRanks in the last 3 months, 30 are bullish, while 2 remain neutral. The consensus target price stands at $173.19 representing a close to 6% upside from current market levels.

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