Cowen Cuts PT on Netflix (NFLX) to $360; Q3 Sub Growth and Q4 Outlook Rile Investors

Cowen and Company is commenting on Netflix (Nasdaq: NFLX) following Q3 results and Q4 outlook issued on Wednesday night. The firm reiterates its Market Perform rating, but moves its price target from $446 down to $360.

Analyst John Blackledge said Netflix reported solid 3Q14 financials, but U.S. and Int'l sub growth was lower than expected. 4Q14 sub guide was also light (vs. our forecast and consensus), driving shares down ~25% after hours.

Blackledge elaborates, Netflix delivered total revenue of $1.41BN (+27% y/y), in line with our est driven by Int'l revenue of $346MM (+89% y/y) and US revenue of $1.06BN (+15% y/y). US Streaming revenue of $877MM (+25% y/y), in line, offset by DVD revenue of $187MM down 16% y/y. Opex was slightly lower than expected (lower content and marketing expenses) resulting in Op Income of $110MM, up ~93% y/y and 10% above our estimate. EPS (GAAP) of $0.96 was above our forecast of $0.89 and consensus of $0.93 and EPS (non-GAAP) of $1.20 vs. our estimate of $1.11.

NFLX 4Q14 US and Int'l subscriber guidance was lower than expected, with US net adds of 1.85M, down 21% y/y vs. our forecast of 2.25MM and consensus of 2.18MM, while Int'l net adds of 2.15MM, up 23% y/y, but below our 3.66MM and consensus 2.62MM. We adjusted our sub forecast near guidance for 4Q14 and for the US in '15-'19, kept estimates largely intact as we had forecast 4.6MM and 3.5MM net adds in '15-'16, ~20%-25% y/y net add declines, similar to 2H14 y/y levels. For Int'l, we adj. our 4Q14 estimates near guidance and modestly reduced our long-term sub guidance.

One trend in the quarter that mgmt expects to persist is a large disparity in net income vs FCF ($133MM delta in 3Q14) given rising cash outlays for original content that will it the income statement (but on a lag) as the content cost is amortized. As such we significantly increased that cash cost component '15-'19, which reduced our cash flow trajectory forecast.

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

Netflix closed at $448.59 yesterday.

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