The company on Monday after the closing bell beat on both the top and bottom line, while adding 5.3 million new subscribers worldwide, which also beat analysts' estimates. Netflix said it plans to spend between $7 billion and $8 billion on content in 2018, higher than the $6 billion it will spend this year.
Shares of Netflix were up 0.8% to $204.21 on Tuesday morning. That's after the stock closed at an all-time high of $202 per share on Monday and continued to climb in after-hours trading. Shares have rocketed more than 60% this year.
Some Wall Street analysts are concerned by Netflix's accelerating cash burn, but seem to be satisfied that it will lead the company to build an unrivaled library of original content, giving it the ability to attract more subscribers. Here's what they had to say about the quarter:
Michael Pachter, Wedbush (Underperform, Price Target raised to $93 from $88)
"Given its impending domestic price increase and international price increases that have been layered in across the globe, some modest slowing in net subscriber additions should be expected. So long as Netflix is able to increase its subscriber base, we think that investors will overlook its continued high rate of cash burn."
Michael Olson, Piper Jaffray (Overweight, PT increased to $240 from $215)
"Netflix is the leader in a category that contains massive multi-year growth potential. There will be increasing competition and unforeseen hurdles along the way, but we think Netflix has reached 'escape velocity.' As the consumer content dollar spend shifts from traditional broadcast to internet delivery, we believe the market will support multiple large players, with Netflix leading the way."
John Janedis, Jefferies (Hold, PT raised to $190 from $180)
"We believe that recently announced price increases in the US will be implemented over the next 2-3 months. Assuming an average selling price of $11.15, and net adds of 3.5M (from +4.6M in F17), we expect the US segment's rev. and contribution profit to grow 20% / 26%, respectively, in F18. Longer term, we believe partnerships like that with T-Mobile (TMUS - Get Report) could be meaningful drivers to subs and think TMUS subs could represent ~300K-500K to 4Q net adds."
Scott Devitt, Stifel (Buy, PT raised to $235 from $230)
"Netflix expects to raise its content spend to $7B to $8B on a P&L basis in 2018 and plans to step up domestic marketing spend around original programming to benefit global word of mouth about the service. Despite these investments, we anticipate Netflix to deliver ~400 basis points of operating leverage next year as we expect subscriber growth / pricing increases to more than offset growth in content and marketing expenses."
Andy Hargreaves, KeyBanc Capital Markets (Overweight, PT raised to $230 from $206)
"We continue to recommend owning NFLX and are raising our DCF-based price target to $230 from $206. 3Q results and 4Q guidance suggest Netflix is accelerating away from competitors and building pricing power while driving better-than-expected subscriber growth. This combination suggests greater near-term earnings potential and the likelihood for a longer period of aboveaverage growth than we previously expected."
Stephen Ju, Credit Suisse (Neutral, PT lowered to $209 from $210)
"Whereas we were previously expecting a staggered price hike to its user base, it does appear that Netflix will roll out to the relevant markets at one time, which does raise our revenue estimates for 2018. This is offset by increased content acquisition spend expectations...which at this point should not be a surprise as the company looks to pull the quality of its library even further away from its competitors in a bid to continue winning consumer engagement time. Our price target remains essentially unchanged at $209 (vs prior $210) as the increase in revenue is offset by higher content expenses."
Daniel Salmon, BMO Capital Markets (Market Perform, PT raised to $205 from $195)
"We expect lessons learned from the roll-out last year will help limit churn in the U.S. due to the new price increase; just as importantly, it comes ahead of a significant quarter of new content, highlighted by season 2 of Stranger Things
(10/27) and the premier of Bright (12/22, starring Will Smith), both of which we expect to be to more heavily marketed than most originals. Meanwhile, international sub trends remain better than expected. While cash burn remains elevated, we expect debt markets will remain welcoming."
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