Netflix, Inc. Could Blast Higher By Another 12%, Says Oppenheimer

Oppenheimer's Jason Helfstein hikes up his 12-month price target 16% on Netflix following a stellar fourth quarter showcase.


Netflix, Inc. (NASDAQ:NFLX) shares are rocketing 11% this morning; in other words, investors are loving Netflix’s subscriber momentum that keeps roaring forward, especially exhibited in the video streaming giant’s standout fourth quarterly print.

Oppenheimer analyst Jason Helfstein cheers that these “results demonstrate pricing power” for the giant, and in fact, this “growth trajectory justifies cash investment.”

Not only was this “another strong quarter” where Netflix outclassed sub expectations, but the first quarter sub guide suggests “no slowdown” in the company’s full steam ahead.

Therefore, the analyst reiterates an Outperform rating on NFLX stock while hiking the price target from $245 to $285, which implies a 12% upside from current levels. (To watch Helfstein’s track record, click here)

For the fourth quarter, Netflix flashed a 25% year-over-year surge in global streaming subs, with net adds beating out Helfstein’s expectations by a whopping 1.9 million and besting consensus by 2 million. Global streaming average revenue per users (ARPU) not including foreign exchange impact (ex. FX) scored a 7% year-over-year jump with domestic streaming net adds for the quarter soaring 700k ahead of the analyst’s expectations and international streaming net adds rising 1.3 million over the analyst’s forecast. Domestic streaming ARPU fell in line with the analyst’s estimate, marking a 5% year-over-year rise. Meanwhile, international streaming ARPU dipped a modest 1% under the analyst’s forecast, which still underscores a 12% year-over-year surge. Domestic streaming revenue ex. FX shot up 16’% year-over-year with international streaming revenue ex. FX vaulting 59% year-over-year.

Content was a robust point for the giant in its fourth quarter. “Bright, Stranger Things, The Crown, Black Mirror called strong content releases intra-quarter,” the analyst notes.

For the first quarter of 2018, the NFLX team guides global streaming net adds to 6.4 million, topping the analyst’s projection by 3.1 and the Street by 1.4 million. This guide suggests by Helfstein’s calculations a 26% year-over-year jump in subs, which is a step above the first quarter of 2017’s 21% rise. Domestic revenue for the first quarter of the new year was guided 1% above the analyst’s forecast with international revenue guided 7% above Helfstein’s projection. Domestic contribution profit beat out Helfstein’s expectations for the first quarter guide by 1% with international contribution profit guide yielding an even higher outclass of 41%. Operating income guidance beat out the analyst’s expectations by 8%. “FY18 marketing expense guided to $2B, implies +56% y/y vs. +29% in FY17, mktg. investment to support original content awareness,” adds the analyst.

Ultimately, Helfstein is left singing Netflix’s praises, concluding on a confident note: “NFLX reported another strong quarter with 4Q subs above guidance and 1Q sub guidance suggesting no slowdown, despite the pricing increase. 4Q:17/1Q:18 sub growth/pricing dynamic indicates Netflix has achieved incremental pricing power since 2016 ungrandfathering process, driven by the original content investment & operational improvements. NFLX is hitting its stride in many of the 130 1Q:16 launch markets likely to act as tailwind to FY18/19 Int’l sub additions, in addition to incremental marketing spend (FY18 guided to $2.0B vs. $1.3B in FY17). Bears likely to point to FCF guide of $(3.5B) vs. FY17 $(2.0B) but argument unlikely to gain traction unless growth abates, in our view.”

TipRanks suggests a lot of bulls are happy with the stock today, with 20 bulls out of 27 analysts in the last 3 months betting on the video streaming giant, 6 on the sidelines, and one sole bear wandering away. With a return potential of nearly 15%, the stock’s consensus target price stands at $260.67.

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