Thanks to some bullish broker upgrades on Friday night in the US, there’s an awful lot riding on Netflix’s third quarter figures on Tuesday morning, Sydney time.
The streaming video giant will have produce figures the market likes, or better expectations to justify the enthusiasm of the upgrades which saw Netflix shares top the $US200 mark for the first time ever in trading on Friday night.
The shares ended at their highest ever close of $US199.49 on Friday, up nearly 1.9% and valuing the company at a massive $US86.1 billion.
JPMorgan said on Friday that it thinks the shares are headed to $US225, while Goldman Sachs boosted its price target by $US35 to $US235, the highest level on Wall Street.
Lead analyst Doug Anmuth’s optimism was driven by Netflix’s recent prices rises and promotions aimed at signing up new subscribers.
A common theme from analysts ahead of the earnings announcement is the view that Netflix added more subscribers in the quarter than previously thought.
Anmuth said he expects Netflix to report a net 800,000 new subscribers – above the company’s 750,000 guidance.
Goldman analyst Heath Terry thinks other analysts are underestimating the number of subscribers Netflix will add. He expects Netflix to gain 13.9 millions net subscribers in the second half of the year, compared to the Street’s estimate for 10.8 million. He also thinks Netflix will gain traction globally, estimating that it’ll reach 130 million international subscribers by 2020 (its around 104 million now).
In particular, Goldman argued that consensus forecast for Netflix’s subscriber growth remains “too low” especially in light of the company’s growing investment in original content, which it said has a strong correlation to user growth.
Earlier this month, Netflix unveiled a new pricing scheme, which will see the cost of its mid-tier plan go up by $US1 from $US9.99 to $US10.99 a month. Its top-tier “premium” plan will now cost $US13.99 a month, a $US2 increase over its previous price tag of $US11.99. The bottom-tier “basic” plan is unchanged at $US7.99 a month.
Goldman reckons the price increases could add as much as 89 US cents to Netflix’s average revenue per user (ARPU) in the US by the first quarter of next year. “We believe this strategy reflects both strong engagement trends and an effort to monetize widespread password sharing,” said Goldman (which happens among millennials and families).
