Netflix, Inc. (NFLX): International Growth, Rising US Revenue To Overpower Churns

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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.

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