[video] Netflix Surges: What Wall Street's Thinking (Update 1)

Updated from 8:16 a.m. EST to include Pacific Crest analyst comments.

NEW YORK (TheStreet) -- Netflix (NFLX) shares rocketed in Thursday trading, after the Los Gatos Calif.-based firm blew past Wall Street estimates and the company surpassed 33 million streaming subscribers.


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Netflix earned 79 cents a share on $1.175 billion in revenue, ending the quarter with 33.42 million streaming subscribers, of whom 31.71 million were paying members. The company continues to make great strides internationally, adding 1.74 million subscribers around the world during the quarter, taking it to 10.93 million users. Streaming margins hit 23% in the fourth quarter.

Analysts surveyed by Thomson Reuters were expecting Netflix to earn 66 cents a share on $1.17 billion in revenue for the fourth quarter.

Shares of Netflix were surging in Thursday trading, gaining 15.6% to $385.85.

Netflix said it expects to reach 30% contribution margin in 2015, but noted that once that level is reached it would get harder to keep growing at 400 basis points per year.

Netflix said it expects to have over 35 million streaming subscribers (35.67 million) by the end of the first quarter of 2014, with 34.26 million of them paying subscribers.

For the first quarter, Netflix expects to earn 78 cents a share, above the consensus estimate of 76 cents a share.

Wall Street analysts were by and large supremely bullish on the note, with the first $500 price target on shares, following the results.

NFLX ChartNFLX data by YCharts


JPMorgan analyst Doug Anmuth (Overweight, $500 PT)

"Netflix reported strong 4Q results with domestic streaming subs toward the high end of guidance, and international subs and profitability showing greater upside. 4Q domestic net adds of 2.33M were 14% higher than a year ago, an acceleration from 10% growth in 3Q. Netflix expects 4Q's momentum to continue in 1Q and guided to 11% Y/Y growth in net adds, though we think this could prove conservative given the launch of season 2 of House of Cards along with the final 8 episodes of Breaking Bad, both coming in February."

Oppenheimer analyst Jason Helfstein (Perform $419 PT)

"While NFLX reported solid 4Q results and 1Q guidance, we are reducing our target to $419 on lower long-term margin assumptions following management commentary. Fourth-quarter US/Int'l streaming net adds 10%/15% ahead, while contribution profits were 9%/7% above Opco/Street on lower streaming costs. First-quarter sub guidance implies continued momentum, with US/Int'l streaming net adds 26%/65% above Street. However, management suggested that streaming contribution margins would slow past 2015. While the growth story remains intact, we are reducing long-term est. EBITDA margins by 100 bps and lowering our target to $419. Maintain Perform on valuation."

MKM Partners analyst Rob Sanderon (Buy, $440 PT)

"NFLX domestic subscriber additions were the biggest surprise, well ahead of our and consensus forecasts. International subscribers were also well ahead and Q1 guidance was outstanding. Concerns of saturation that have caused a pullback will be put to rest, for the time being at least. The stock has already made up all of its retrenchment and hit new highs in after-hours trading. We still see upside in the stock and expect it will achieve our recently revised $440 price objective relatively quickly."

BMO Capital Markets analyst Ed Williams (Market Perform, $370 PT)

"The continued strong subscriber growth in 4Q13 augurs well for sustained momentum in Netflix's current business trends as we head into 2014. Domestic subscribers grew by 2.328 million sequentially in the December quarter, while domestic streaming contribution margins expanded by 420 basis points from last year to help fuel strong year-over-year EPS growth that exceeded consensus estimates by $0.13. We expect the subscriber momentum to remain. We are raising our revenue expectations for 2014 to reflect strong growth trends, but lowering our EPS estimate driven by higher anticipated levels of investments associated with a new major expansion in Europe later this year."

Pacific Crest Securities analyst Andy Hargreaves (Sector Perform, $480 PT)

"Six months ago, assumptions that Netflix could grow to more than 120 million subscribers at a $10 average revenue per user (ARPU) seemed aggressive. Netflix's growth in the interim and separation from current competitors make those assumptions appear more reasonable. Further, the company's developing dominance creates strategic optionality that is increasing in value with the company's expanding scale, in our view. We now see fair value at $480, based on growth to 134 million global streaming subscribers."

-- Written by Chris Ciaccia in New York

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