Baird Calls Netflix's Earnings Report 'A Crowning Q4'

Netflix, Inc. NFLX reported robust subscriber growth for Q1, with upside in the United States and particularly strong international upside.

Baird’s William V. Power maintains a Neutral rating on the company, while raising the price target from $120 to $138.

“While constructive on the strong subscriber gains and industry leading position, we also view risk/reward as fair in light of rising content costs, competitive risks and continued FCF losses,” the analyst mentioned.

Q4 Beat

Netflix significantly beat the U.S. and international growth expectations in Q4, while providing its Q1 international guidance above expectations as well.

Power believes the company’s new original content drove the beat, stating, “We believe the global success of The Crown, Marvel's Luke Cage and others helped drive the subscriber beats. The company believes it also pulled some Q1 growth into Q4, and expects a stronger 2H'17 than 1H driven by new seasons of many popular shows that hit in 2H'17.”

Netflix reported U.S. net additions of 1.93 million, ahead of the estimate and consistent with the modest upside suggested by Baird’s quarterly survey.

Total international net additions came in at 5.12 million, meaningfully ahead of the estimate of 3.75 million.

The company reported revenue of $2.48 billion and EPS of $0.15 for Q4, again beating the consensus and the estimates.

Q1 Guidance

“NFLX guided to Q1 domestic and international net additions of 1.5 million and 3.7 million, with domestic roughly in line and international ahead,” the analyst reported.

The EPS guidance of $0.37 is well ahead of the consensus forecast, driven by higher margins and a lower tax rate. However, the revenue guidance of $2.52 billion modestly missed expectations.

International profitability appears to be improving, with Netflix guiding to international contribution margin of 1.5 percent in Q1, although Power expects this to turn negative in Q2.

The EPS estimate for 2017 has been raised.

Image Credit: By Geom (Own work) [CC BY-SA 4.0 or Public domain], via Wikimedia Commons
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Posted In: Analyst ColorEarningsNewsGuidancePrice TargetAnalyst RatingsMoversTechMediaBairdWilliam V. Power
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