Netflix (NFLX) Q3 Earnings Preview: Stifel Sees Upside on Strong Engagement Data

October 12, 2021 6:34 AM EDT
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Stifel analyst Scott Devitt has weighed in on Netflix (NASDAQ: NFLX) ahead of the Q3 earnings report that is due next week.

“We forecast a consensus-matching +3.5mm net sub adds in 3Q, in line with management guidance, resulting in 212.7mm paying streaming subs. Our sub adds estimate comprises +0.6mm from UCAN (75mm total, $14.6 ARPPU), +1.2mm from EMEA (70mm total, $11.7 ARPPU), +0.7mm from LATAM (39mm total, $7.7 ARPPU), and +1.0mm from APAC (29mm total, $9.8 ARPPU). Our sub forecasts, coupled with our estimates for ARPPU, drive our $7.5B 3Q Total Revenue estimate (+16% y/y) alongside our expectations for $1.5B in operating income (21% margin),” Devitt said in a client note.

The analyst points towards positive engagement data for Q3. For instance, MAUs are tracking at 211.3 million, higher than 203.6 million recorded at the end of 2Q

“With MAUs rising +7.7mm from the end of 2Q we believe there is an increased likelihood that Netflix could report sub adds ahead of the +3.5mm guidance and consensus estimate. We note that Apptopia-implied sub adds (derived from changes in MAUs) remain an imprecise gauge of sub-add performance due to an over-index toward mobile usage and because increases in MAUs do not necessarily imply new subscribers,” Devitt added.

The analyst recently raised the price target on NFLX to $650.00 per share as he expects the company to benefit from strong investments in content.

“We believe Netflix has entered a favorable setup following the sub add pull-forward-induced trough. We forecast accelerating sub additions through the balance of the year supported by compelling new and original releases, continued international penetration, and seasonally favorable periods for sub adds. We forecast +10.1mm net sub adds in 4Q (Street: 8.4mm) and believe our thesis will play out through the balance of the year as we envision a return to sub add outperformance,” the analyst concluded.

Netflix stock price is up 0.3% in pre-open Tuesday.

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