October 2017


Wall Street analysts think that rising US revenue and international growth could offset the churns that will occur due to price increase

Netflix, Inc. (NASDAQ:NFLX), the best S&P 500 stock of 2015, has faced heavy hammering this year and it is still down about 8% year-to-date (YTD). The world’s largest streaming network is set to increase monthly subscription packages for a large number of its US subscribers and investors have been worried that it will affect its domestic subscriber additions because of increasing churn rate.

Although the price hike would likely result in churn, some research firms like MKM Partners and Nomura believe that the international growth prosper should overpower the potential domestic weaknesses.

Netflix will report its first quarter of fiscal year 2016 (1QFY16) results on April 18. MKM said that it will not be surprised if the company will post soft domestic user additions guidance for 2QFY16 due to the planned price hike.  

The research firm also stated that the Street is expecting soft performance in the international markets too. However, it thinks that the market does not understand the metrics magnitude of the international subscriber ramp. 

MKM noted, “With the stock still well below Q4 highs, relatively high short interest (50mn shares, three days to cover), relatively low expectations and our view that int’l may surprise to the upside, we are comfortable with the stock set-up into results.”

Additionally Nomura’s Anthony DiClemente, also admits that it is difficult to forecast the consequences of price hikes. However, he sees positive impact of earnings and revenue; thus, he increased his EPS estimate for FY17 to $1.25.

The sell-side firm believes that there is no doubt in international growth prospect, as the app download data checks show that the new markets could provide strong tailwinds to overall net additions in 1QFY16 and bolster 2QFY16 guidance.

The price hike during this quarter is expected to boost annual revenue run-rate by $505 million, on the back of increasing domestic revenue. However, he thinks the price increase will likely be a headwind to the subscriber addition guidance.

Mr. DiClemente maintained a Buy rating on Netflix with $130 price objective.

Augmented reality remains of particular interest in the future, as the analysts project accelerated growth in near term

Himax Technologies, Inc. (ADR) (NASDAQ:HIMX) jumped 18% in August according to S&P data and continued surging 0.47% in the market on Thursday. The performance can be commended, as it has risen 29.51% year-to-date through Thursday.

Compared to this, the shares of rival Maxim Integrated Products Inc. (NASDAQ:MXIM) increased only 2.6% in the market on YTD basis. Furthermore, on YTD basis, even Nasdaq and Dow Jones are rising just 4.84% and 4.51%, respectively. This could be the result of its better than expected revenues. It had pleased its investors by increasing its revenues 18.8% year-over-year. The revenues grew on strong Augmented Reality outlook as the division started showing healthy future prospects.

Furthermore, it has 343.82 million outstanding shares in the market. These shares have a one year stock value of $5.77-12 and daily stock value of $10.49-10.71. The main reason that the semiconductor producer showed exceptional results was that it reported solid wins in this growing segment. The analysts believe that it is well positioned to benefit from the expanding AR segment.

This segment would in turn result in higher revenues for wafer-level optics and liquid crystal, especially in the second half of FY16. CEO Jordan Wu believes that the segment is expanding to include smartphones that hold long term growth potential as the market has shown prospects of growing into a multibillion dollar industry.

In addition to this, the management holds several reasons to be bullish on AR position. The foremost reason could be that the Taiwanese company has high expertise in the area as it has been working in the industry for past 15 years, leading it to have a competitive edge in terms of designs in the recent years.

It is also believed to have a secured a spot with Microsoft Corporation (NASDAQ:MSFT) to bring AR headsets to the market. The headsets would take time to realize gains but still pose huge contributions in the initial stages. Firms like Morgan Stanley also have high hopes as they believe that 14% of the revenues is to be generated from this segment in FY16.

Under these expectations, investors have gained bullish sentiments as the $1.77 billion company already started growing revenues in the non-driver businesses that includes AR segment revenue in the second quarter. They believe that the company holds huge potential as the segment is showing signs to grow to $90 billion by FY20.

Thus, it shows enough potential to deliver on its AR expected results. As a result, Himax Technologies has largely received six Buy, one Overweight, and two hold evaluations from the analysts at FactSet Fundamentals. The average price target has also been given at $11.76, showing potential to rise by 10.79% over the closing price of September 15.