RBC Capital’s Mark Mahaney reveals strong viewership level and lowering churns in Brazil, the UK, and the US
Netflix, Inc. (NASDAQ:NFLX) shares jumped 1.78% over the past week on the back of optimistic reports from William Blair and Cantor Fitzgerald, as well as positive commentary from RBC Capital Market’s Mark Mahaney with CNBC where he chose his three top tech stocks. Following the appearance, the analyst published a report on Friday maintaining his Outperform rating with price target of $130.
The research firm took surveys in Brazil, the UK, and the US and all of them showed strong viewership level domestically and internationally. With hot weather outside, people prefer staying at home and binge-watch their favorite TV series.
RBC Capital’s 20th quarterly survey in the US was really encouraging to Mr. Mahaney, as it revealed record-high consumption level of 54% for Netflix subscribers, 47% for YouTube, on-demand video sharing site of Google Inc, and 30% for Prime Instant Video, streaming platform of Amazon.com, Inc.
Additionally, the survey suggested that consumer satisfaction levels were “modestly” improved with somewhat declining possibility for churn rates, which is the biggest fear for investors amid the on-going un-grandfathering.
The investment firm’s 5th annual survey in the UK demonstrated that the global SVoD leader’s penetration is increasing robustly. While the respondents’ consumption increased from 30% in 2015 to 42% in 2016, customer satisfaction rates remained lofty.
“UK may still have elevated churn due to price increases, but we believe this problem is solvable – offer more content, especially original content,” Mr. Mahaney noted, similar to the solution he provided at CNBC – increase in value proposition.
The analyst’s 2nd annual survey in Brazil also high usage level of 71% for Netflix, compared to 60% last year. Moreover, the churn rates seem to be getting better.
Mr. Mahaney believes that Netflix’s penetration rates can hit 30% in several international markets, as well as pumping up profitability. He highlighted Netflix is on course to produce contribution profit of $500 million in ‘Pre-2015 International Markets’ with contribution margin of 20% which is in-line with the company’s profitability ramp in the US in 2012 and 2013. The sell-side firm concluded that investors are underestimating international earnings potential of Netflix.