Netflix Inc.'s (NFLX) earnings report surprised to the upside on many metrics, yet the stock fell after the streaming giant issued the earnings print.
But analysts all over Wall Street are raising their price targets on Netflix. In fact, 14 analysts raised their price targets on Friday, including Netflix's biggest bear from Wedbush securities, Michael Pachter.
Netflix reported Thursday earnings per share of 30 cents, beating Wall Street's GAAP expectations of 24 cents. Revenue came in at $4.18 billion, missing estimates of $4.2 billion. Net international subscriber additions were 7.31 million, beating estimates of 6.1 million. U.S. subscriber additions were 1.53 million, beating estimates of 1.4 million. And in the wake of a subscription price increase, Netflix forecasts 7.3 million international paid net adds for the first quarter of 2019, which is above a 6.37 million consensus estimate.
Still, the stock fell after the earnings report and ended Friday down 3.99% to $339 a share.
RBC Capital Markets
RBC analyst Mark Mahaney lifted his price target to $480 a share from $450, representing 36% upside. "Global paid sub growth continues to accelerate," Mahaney wrote in a note Friday. Even with the price hikes, which Mahaney thinks won't hurt demand much, "Netflix offers a truly compelling value proposition with global appeal." He moved his operating margin estimate for the full year of 2019 up by 1.1% and his 2019 EPS estimate up by 3.4% to $4.17. He said Netflix hit its "peak free cash flow burn," which was $3 billion in all of 2018.
JPMorgan analyst Doug Anmuth moved his price target to $435 from $425. "On the heels of NFLX's US & (partial) LatAm price increase announced earlier this week, 4Q18 results confirmed strong momentum exiting the year & into 2019," Anmuth wrote in a note. He does think Netflix could lose just more than 1 million paid subscribers from the price increases, but still expects strong revenue growth. Further, "operating margins should move sequentially higher through '19 as the price increase settles in, suggesting a 2019 op margin exit rate at least in the mid-teens." A big goal for Netflix is to get its operating margin into that range.
Plus, "NFLX's content momentum should continue in 1Q, a seasonally strong period, & the paid net add forecast could be conservative," Anmuth said. Netflix's Birdbox & Black Mirror: Bandersnatch sold well in a usually strong fourth quarter for content. He expects improved operating margins to make Netflix's free cash flow "meaningfully improve in 2020."
Analyst Michael Graham raised his price target to $415 from $400. "We are strongly encouraged regarding our investment thesis, which revolves around a rapidly expanding catalog of original content driving continued strong subscriber growth," he wrote. He added, "Strong content slate in Q4 should continue into 2019; gives Netflix enough comfort to raise prices domestically." He also expects cash burn to moderate by 2020 on the back of stronger operating margins.
Analyst Benjamin Swinburne raised his target price to $450 from $430. Swinburne summed up much of Wall Street's collective thesis best. "Fourth quarter results and the first quarter guidance, at a high level, reinforce the investment thesis on NFLX shares - specifically, accelerating net additions, pricing power, and rising visibility into the path towards free cash flow generation," he wrote.
Analyst Michael Pachter, a long-time Netflix bear, raised his price target up to $165 from $150.
"Netflix management appears confident that the price increase will have little or no impact on churn, guiding to sequentially higher net domestic paid subscriber additions," Pachter wrote. He added, "We tend to agree with this assessment over the near term, as we think that the vast majority of domestic subscribers use the service frequently." But his bear thesis is intact, as "the company must replace existing content provided by the four competing studios, and the remaining content available for licensing is likely to be in great demand from Amazon, Hulu and potentially from the four competing new streaming services." He said he thinks a discounted cash flow valuation is "impossible."
The stock wasn't getting any traction Friday, as a strong divergence in investor opinion on the subscription price increases made the volume of Netflix options the second highest out of any stock on the day. "Amid this post-earnings dip we're seeing heavy options activity on both the bullish and bearish sides, which illustrates the divergence in how traders think the fee increase will affect the stock," said E*Trade Financial's Senior Equity Options Strategist Mary Ryan.
Netflix is RealMoney's stock of the day -- see trader Sarge Guilfoyle's take on Netflix shares