Netflix (NFLX) The Dog Ate My Credit Card, Analyst Summary
Netflix's (NASDAQ: NFLX) earnings interview caused quite a bit of volatility as analysts digest the meaning of weaker than expected domestic sub adds, stronger than expected international sub adds and implications of a price increase. Below are some key facts from the call and a summary of the analyst calls.
Key facts from the notes:
Domestic sub growth of 888,000 to 43.181 million was below guidance. International sub adds of 2.736 million to 25.987 million were 325,000 above.
3Q15 Total paid sub adds reached 3.6mm, which pushed the stock down until management highlighted that much of the US Paid Sub miss was attributable to issuances by banks of chip-based credit and debit cards, which lowers Netflix’s auto-renewal rates
US paid subs guidance of 1.65M for 4Q15 and 3.5mm for international
Excluding FX, international ASP’s grew 6% y/y in 3Q15
US contribution margin expanded 375 bps y/y in 3Q15
Net income was only $29 million, and free cash flow was $(252) million.
NFLX launched Japan in 3Q15, will launch in Italy, Spain and Portugal in 4Q15 and South Korea, Hong Kong, Taiwan and Singapore in 1H16
Analyst wrap:
Michael J. Olson at Piper Jaffray raised his price target to $109 on an unchanged multiple. We maintain our Neutral rating, with a positive long-term bias, based on our analysis that suggests EPS growth from '17-'20 will average >150%. NFLX, however, has been a volatile name in recent years and while we expect the general trend to be "up and to the right," we also expect periodic pullbacks and would look to take advantage of more attractive entry points.
Laura Martin at Needham & Company raised her 12-Month Target Price to $125 (from $111). No change to the BUY rating.
Barton Crockett from FBR continues to rate NFLX Outperform, as our proprietary survey work suggests that Netflix users value the service more than traditional pay TV, which argues for subscriber growth and ARPU growth opportunities for this $10-per-month service. No change to the PT of $138 and Outperform rating.
John Blackledge at Cowen left his long-term forecast largely unchanged with no change to the $154 PT or Outperform rating.
Ken Sena at Evercore remains concerned about high levels of spending impacting FCF along with the high valuation and maintained his Sell rating and $109 PT.
Michael Pachter at Wedbush, the biggest bear on the Street, in a report entitled 'The Dog Ate My Homework and Other Excuses' said chip-card excuse may be sincere, but they think pricing is to blame. He said investors continue to overlook increasing cash burn and relatively modest net income.