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Netflix (NFLX) PT Boosted to $700 by RBC Capital's Mahaney

May 22, 2015 6:27 AM EDT
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Price: $618.39 +2.06%

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    43 Buy, 27 Hold, 4 Sell

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    Up: 20 | Down: 14 | New: 22
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RBC Capital analyst Mark Mahaney reiterated an Outperform rating and boosted his price target on Netflix (NASDAQ: NFLX) to $700.00 (from $600.00) due to positive U.S., France, and Germany survey results, their proprietary Original Content Tracking, and an updated NFLX EPS Power Analysis, now including a potential China market launch.

Mahaney cited the following key points:

#1: U.S. Survey Highlights Strengthening Value Proposition – We ran our 15th quarterly 1,000+ U.S. Internet User survey. Key findings: 1) 50% of respondents use Netflix to watch Movies and TV shows – making it the leading U.S. Online Video site, followed by YouTube (44%), Hulu (24%), and Amazon (a slipping 23%); 2) 72% of current Netflix subs are “Extremely satisfied” or “Very satisfied” – the highest level we have tracked and up from 58% 2 years ago; 3) Impact from $1 price increase remains muted – 77% of existing NFLX subs are “Slightly likely” or “Not at all likely” to cancel when the $1 price increase goes into effect, and only 9% are “Extremely Likely” or “Very Likely” to cancel; & 4) Indicated churn rates remain at record lows – 73% of current subscribers are “Not at all likely” to cancel their subscriptions, one of the lowest levels we’ve seen.

#2: France & Germany Surveys Suggest Early Traction in Europe – We ran our second France & Germany surveys of ~3,200 Internet users. Key findings: 1) Netflix usage climbing in both France/Germany – 7% of French respondents (vs. 5% in December) and 11% of German respondents (vs. 4%) – NFLX has surged to be the 4th largest Online Movie/TV Website in Germany vs. 8th in December; 2) Satisfaction remains high – 86% of French subs/88% of German subs are “Extremely satisfied” or “Very satisfied”, in line with levels we’ve seen before; & 3) Churn still likely high – only 14% of French/18% of German subs said they were “Not at all likely” to cancel in the next 3 months.

#3: Proprietary Tracking Points To Continued Original Content Traction – Daredevil has managed to achieve the highest star rating (4.6) of any Netflix OC show we have tracked and shows good momentum, having garnered almost 400k reviews per week since its launch. Also, House of Cards has maintained its average “star quality” rating of 4.5 stars, with Orange is the New Black following with 4.4 stars.

#4: Potential Long-Term EPS Impact Of A Successful China Launch – Given that NFLX has stated that China would be a potential market and recent media conjecture about potential partnerships, we have updated our global subscriber analysis first published last September. The so-what here is that by including China and assuming an increasingly reasonable 20% bband household penetration, Netflix’s long-term International subscriber base rises from 120MM to approximately 160MM. At a 30% Operating Margin and $11 ARPU, this translates into $60 in long-term earnings potential…which could well carry a market premium multiple…

For an analyst ratings summary and ratings history on Netflix click here. For more ratings news on Netflix click here.

Shares of Netflix closed at $623.02 yesterday.



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