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UPDATE: Netflix (NFLX) Upgraded to Overweight at Morgan Stanley; Analyst Sees Upside to Consensus Revenue

June 17, 2014 8:06 AM EDT
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Price: $603.67 -1.61%

Rating Summary:
    43 Buy, 27 Hold, 4 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 13 | Down: 10 | New: 11
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(Updated - June 17, 2014 10:25 AM EDT)

Morgan Stanley assumed/upgraded Netflix (NASDAQ: NFLX) to Overweight with a price target of $500. Analyst Benjamin Swinburne noted its business was scaling nicely in the U.S., and he is positive on international growth. Overall, he bullish on the company's long-term profit potential and he sees upside to consensus revenue.

"By 2020E, we believe NFLX can achieve ~55mm US members as churn declines over time and NFLX increases penetration of broadband HHs. Given the nature of how NFLX accounts for content, we believe the company has solid visibility into its margin expansion expectations over the next few years," said Swinburne.

"We believe NFLX has ~10% penetration of the ~110mm broadband HHs in its current int’l markets, with key launches in additional European markets coming later this year. By 2020, we see the int’l broadband TAM increasing to ~280mm HHs, with NFLX’s penetration doubling to ~20%. While this outlook may appear bullish, we believe it is achievable particularly given success in Canada, the UK and the Nordic regions. Further, the ubiquity of broadband, proliferation of connected devices, and arbitrage opportunity of serialized programming should allow NFLX to scale int’l and drive long-term margins," he continued.

"Our DCF-driven $500 YE15 target values U.S. streaming at $16bn, implying 16x ‘16E EBITDA, reasonable in the context of the 15% top-line growth expected in ‘16. We value int’l at $13bn, as the int’l addressable market will already be twice the size in broadband HHs (~180mm) vs. US (~90mm) by YE14. On a consolidated basis, we also arrive at $500 assuming shares trade at 14x fwd. EBITDA in ‘20, discounted back. Given YTD strength, shares may reflect near-term upside, but we would be buyers on a pull back. We note a wider risk-reward vs. broader media given lack of near-term earnings."

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 $430.26 yesterday.



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