Consumer discretionary

Netflix, Inc. (NFLX) Domestic Concerns Have Been Overblown

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Hargreaves believes the Street has overblown Netflix’s issues at home for 2QFY16 and he expects investors to broadly focus on global opportunities after 1QFY16 earnings release

Netflix, Inc. (NASDAQ:NFLX) shares have faced hammering since the beginning of 2016 and are trading down 10% year-to-date (YTD), despite recovering from lows in February. After a potentially strong quarterly performance in terms of subscriber additions during first quarter of fiscal year 2016 (1QFY16), the Street is now concerned about the US growth prospect in 2QFY15.

Pacific Crest analyst Andy Hargreaves, who rates Netflix stock as an Overweight with $140 price target, stated that some Street analysts still fear that the world’s largest online TV network will fail to add many subscribers in the current quarter. However, he thinks these concerns have been “overdone and myopic relative to the company’s global opportunity.”

Mr. Hargreaves is expecting Netflix management to guide 300,000 in 2QFY15 US subscriber growth when it will report its 1QFY15 results on April 18. Although he believes that less than half of the consensus estimate, he urges that investors expecting less than the Street analysts.

The sell-side firm thinks that the guidance will at least be in-line with expectations of buy-side and any growth forecast would probably enable investors to concentrate “more broadly” on business opportunities around the globe.

According to Mr. Hargreaves, consensus for 2QFY15 international subscriber net additions is 2.8 million, which he believes is “conservative,” as it would imply the lowest adoption level in pre-2016 markets in three years and a massive deceleration in post-2016 markets. Thus, the research firm sees potentially significant upside to the Street’s projection for 2QFY15 and 3QFY15 international subscribers, which could substantially overshadow woes at home.

Pacific Crest expects investor sentiments shifting from Netflix being seen a US company to a “global leader in video distribution” as 2016 progresses. Mr. Hargreaves advised investors to not “step over quarter to pick up dimes.”

Street analysts like Robert W. Baird and ITG Investment Research think that Netflix may struggle to add new subscribers as it moves forward to introduce the planned increase in subscription prices. This may lead to excessively churn rate and effect the key metric.


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