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Wall Street Sings Netflix (NFLX) Praises Following Strong Fourth-Quarter Earnings

January 21, 2015 11:54 AM EST
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Price: $613.53 --0%

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Shares of Netflix (NASDAQ: NFLX) are soaring higher Wednesday following better than expected fourth quarter earnings results after the close which showed strong international subscriber growth.

The online video steaming leader reported earnings per share of $0.72, or $0.27 better than the consensus of $0.45. Revenue of $1.48 billion for the quarter was in-line with expectations. The company ended the quarter with 39.11 total U.S. streaming members and 18.28 million total International streaming members, up from 37.22 million and 15.84 million, respectively at the end of the third quarter. It was the strongest growth for U.S. members since the first quarter and the strongest ever for International members. The company sees adding another 1.8 million U.S. members and 2.25 million International members in the current quarter.

Highlighting the positives in the fourth quarter, RBC Capital analyst Mark Mahaney noted that domestic and international streaming net subscriber additions of 1.9 million and 2.43 million, respectively, were better than expectations. In addition, international streaming margins improved 560bps year-over-year to (20%). Lastly, operating profit of $65 million beat the Street and the firm's estimate.

Looking at the negatives for the quarter, Mahaney noted first quarter 2015 domestic streaming additions guidance of 1.8 million was below the Street of 1.96 million. In addition, Q1 EPS guidance of $0.60 was below the Street at $0.81 - however the analyst notes that the consensus may not have accounted for European VAT changes and foreign exchange as well as ongoing market launch costs. Lastly, the analyst noted negative free cash flow of $77 million in the quarter.

In addition to a host of price target increases, Netflix caught one upgrade following the report. Nomura Securities upgraded Netflix (NASDAQ: NFLX) from Neutral to Buy and raised its price target to $500 today, saying an inflection point in subscriber trends is likely to drive follow-through for shares in 2015. Nomura had previously feared that Netflix was reaching a natural maturation point in its subscriber trajectory, but last night’s results and guidance have led Nomura to materially improve the view. Analyst Anthony DiClemente highlighted five reasons for the upgrade: 1) Subscriber expectations slightly more reasonable for US, Intl accelerating; 2) Pricing elasticity not as ominous as previously feared; 3) Strong content cycle in 2015 likely to de-risk subscriber trends; 4) Business fully global by 2016, also driving cost efficiencies; 5) Equity capital raise taken off the table.

Shares of Netflix last traded at $409.08, or up 17.3%.



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