Top Analyst Sets Expectations on Netflix (NFLX) Stock Ahead of Earnings Show

Netflix (NFLX) is slated to release first-quarter earnings after close Tuesday, April 16th, as Wall Street is hoping the streaming service will continue showing strong user and revenue growth.

The company added 8.8 million members in the fourth quarter of 2018, which brought total paying customers to 139 million — up from 110 million at the end of 2017. Strong growth is most attributable to Netflix’s international expansion, as more than 80% of the company’s fourth-quarter additions came from outside the US. Looking ahead to the coming release, the company is expecting 8.9 million new subscribers, including 7.3 million international customers.

Ahead of the release, Stifel’s top analyst Scott Devitt forecasts “1.61mm domestic paid net streaming subscriber additions in 1Q versus consensus of +1.60mm and the company’s forecast of +1.60mm” and international paid net streaming subscriber additions of “7.35mm versus consensus of +7.32mm and guidance for +7.30mm.”

Looking ahead to the second quarter, the analyst forecasts Netflix to “add +608k domestic paid net streaming subscribers (consensus +659k) and +4.64mm international paid streaming subscribers (consensus +4.71mm).” Over the course of the year, Devitt says operating margins will grow “as management targets less variability in quarter to quarter [operating margin],” with the analyst expecting “Netflix to exit 2019 with a mid- to high- teens operating margin.”

A major concern among some is increased competition, namely Apple TV Plus and Disney+. Devitt says this actually could “not [be] bad for Netflix.” While the analyst cites a Deloitte study suggesting “OTT fatigue is real,” he concludes neither Apple or Disney “are meaningful threats to Netflix.” Apple’s plan of launching “lower quantity (though high quality) of shows” makes it less “a substitute product for Netflix,” but perhaps “complementary.” On Disney, he says “the offering does on the surface appears more of a competing product to Netflix” but the two will be marketed to different audiences, while “the availability of even more SVOD options, including sports content with ESPN+ and others could actually accelerate cord- cutting / trimming, supporting Netflix’s place in consumers’ budgets as the cable bundle value proposition continues to diminish.”

All in all, Devitt maintains a Buy rating on NFLX stock, with a $400 price target, which implies nearly 10% upside for the stock. 

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Scott Devitt has a yearly average return of 22% and a 71% success rate. Devitt has an average return of 61% when recommending Netflix and is ranked #40 out of 5,177 analysts.

Even facing increased competition, Netflix’s stock is still among Wall Street’s favorites. TipRanks analysis of analyst ratings shows more good is to come. Of 32 analyst ratings, 24 analysts recommending Buy, six Holding and two saying Sell. The average price target among these analysts stand at $402.68, representing nearly 10% upside. (See NFLX’s price targets and analyst ratings on TipRanks)

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