NEW YORK (TheStreet) - Netflix (NFLX) - Get Report shares surged more than 16% on Wednesday following the streaming service's upbeat earnings report and suggestions that the growth story is now all about international expansion.
Netflix expects to be available in 200 countries by the end of 2016 and to be generating profit from its global business in 2017.
The news comes as Netflix reported higher than expected new international customers for its fiscal fourth quarter.
Shares were 16.5% higher to $406.57. Here's what analysts said about Netflix's quarter.
Youssef Squali, Cantor Fitzgerald (Buy, $450 PT)
"Netflix reported very strong 4Q:14 results, with the all-important subscriber metrics exceeding expectations for both domestic and, especially, international segments. Overall streaming sub guidance for 1Q:15 was 6% ahead of consensus expectations, with a lighter domestic hurdle more than offset by significantly greater international ambitions. With international increasingly becoming the story, we are reiterating our BUY rating and establishing a 2015 PT of $450 (vs. $415 previously).
Mgt. guided to 40.910M domestic streaming subs (+1.796M adds) and 20.530M international streaming subs (+2.253M adds), vs. consensus' 41.029M (+1.960M adds) and 19.873M (+1.860M adds), respectively. EPS guidance of $0.60 is below consensus estimate of $0.81, mainly on higher original content and marketing spend to drive faster subscriber growth."
Greg Miller, Canaccord Genuity (Buy, $450 PT)
"Netflix reported very solid Q4/14 results with subscriber trends, revenues and gross margins all ahead of expectations. Although quarterly results have proven to be volatile (as with the Q3/14 report), we believe results such as these have and will continue to prevail over the course of any given year in spite of the maturity of the US business. As the undisputed leader in developing the subscription streaming video market globally, we continue to believe Netflix represents the single best way to play the trend that we believe remains in a nascent stage. We believe the recently announced entry of potential competing products will work to partially strengthen Netflix's position by encouraging consumers to adopt the streaming model in greater scale. With our long-term thesis unchanged, we maintain our BUY rating and $450 target."
Andy Hargreaves, Pacific Crest Securities (Outperform, $500 PT)
"Q4 domestic streaming net additions of 1.90 million exceeded guidance of 1.85 million, which, along with solid Q1 guidance, supports the view that domestic Netflix adoption is decelerating, but not stopping. Q4 international net additions of 2.43 million exceeded guidance of 2.15 million. Q1 guidance for international net additions of 2.25 million exceeded our expectation and suggested continued improvement in the most recently launched markets. Overall, Q4 results and Q1 guidance suggested that Netflix's engine for driving subscribers with content and reinvesting proceeds from growth in additional content to drive more subscribers continues to work extremely efficiently.
We believe Netflix's scale, efficient content purchasing and ability to program content without the restrictions of time provide structural advantages that should support massive global revenue and profit growth in the coming years. Our $500 DCF-based price target is based on growth to 55 million domestic subscribers, 85 million international subscribers and $10 ARPU by 2023."
Stephen Ju, Credit Suisse (Neutral, $417 PT)
"This earnings report will be one that ultimately separates investors of differing time horizons as Netflix is committing to a higher level of content acquisition spend and compress consolidated margins near term to accelerate the launch in incremental International territories to expand its addressable market and ultimately longer term increase free cash flow dollars. We submit that given this change in NFLX's international expansion timeline street models could be wrong from 2Q15 to FY16. As we model in a greater level of content acquisition spend for the near-term and our target price decreases, we maintain our Neutral rating on valuation."
TheStreet Ratings team rates NETFLIX INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate NETFLIX INC (NFLX) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, weak operating cash flow and generally higher debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 12.9%. Since the same quarter one year prior, revenues rose by 27.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- NETFLIX INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, NETFLIX INC increased its bottom line by earning $1.85 versus $0.29 in the prior year. This year, the market expects an improvement in earnings ($3.41 versus $1.85).
- The gross profit margin for NETFLIX INC is currently very high, coming in at 83.28%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 4.20% trails the industry average.
- In its most recent trading session, NFLX has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- Net operating cash flow has significantly decreased to -$37.44 million or 207.91% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full analysis from the report here: NFLX Ratings Report
- Written by Laurie Kulikowski in New York.