Finance

Netflix earnings: What Wall Street is saying about record subscriber growth

Published

6 years ago

October 17, 2018

Reed hastings Netflix Getty final Netflix on Tuesday posted quarterly earnings that crushed Wall Street’s expectations thanks to its best ever third-quarter subscriber growth.Getty

Netflix on Tuesday posted quarterly earnings that crushed Wall Street’s expectations thanks to its best ever third-quarter subscriber growth.

The video-streaming giant earned $0.89 per share , 30% above what Wall Street analysts had expected.

Meanwhile, it added 7 million new subscribers in the third quarter, well above the 5.3 million subscriber additions it reeled in at this time last year and the 5 million expected by analysts.

The tech giant said it will add 9.4 million subscribers in the fourth quarter, up from the 8.33 million it added in the holiday period last year.

Nearly every analyst was impressed by Netflix’s subscriber growth, especially in overseas markets. But they have mixed opinions on how Netflix’s spending on original content will impact its profitability.

Here’s what Wall Street is saying about the record quarter:

RBC Capital Markets

Getty

Price target: $450 (from $440)

“Long-term fundamental trends remain very, very, very much intact,” analyst Mark Mahaney said.

“We don’t believe in ‘open-ended growth stories.’ But, darn, Netflix is about as close to one as you can find in today’s market. Global Subs Adds are accelerating in 2018 – per our extensive survey work, the Netflix consumer value prop is compelling. Global Streaming Revenue is accelerating too — pricing power surely helps. And Corporate Operating Margins are expanding — the advantages of a scalable model.”

Mahaney said he views the steady expansion in Netflix’s US contribution margins as demonstrating the company’s profitability, with its fixed-cost content nature and historically declining churn rates suggesting further margin expansions.

“We also view Netflix as one of the best derivatives off the strong growth in online video viewing and in Internet- connected devices,” he said. “We believe that Netflix has achieved a level of sustainable scale, growth, and profitability that isn’t currently reflected in its stock price.”

JPMorgan

Netflix

Price target: $450 (from $415)

“Netflix shies away from talking about any one international market too specifically, but it called out growth in Asia, and we believe India is becoming a bigger factor,” analyst Doug Anmuth said.

Anmuth added he believes previous Netflix products in India have proved to have strong traction, including Sacred Games, Lust Stories, and Ghoul. Selection Day, the 3rd original series in India, will be released in fourth quarter, infusing new momentum to drive subs growth.

“We believe content is strong into 4Q and 2019, and NFLX could again deliver more net adds next year than this year particularly as India & Japan gain greater traction,” he said.

“The bigger picture path is consistent, and we continue to believe there is significant growth potential ahead, with Netflix on track to have 200 million global subs in 2020-2021.”

Related Topics:

Up Next

Stock market news: Dow sinks more than 200 points

Don't Miss

Amazon invests in SevenRooms with the Alexa Fund