Netflix (NFLX) will report third-quarter earnings next Tuesday (October 20 AMC) and it appears Wall Street expects the streaming leader’s new subscriber count to decline from the same period last year. Consensus estimates point to 2.5 million new Netflix subs in 3Q20, a 63% drop from 3Q19.
Concerning? Not for Netflix’ most prominent bull Jeffrey Wlodarczak of Pivotal. With COVID-19 acting as a catalyst for trends already in action prior to the viral outbreak, the 5-star analyst believes “NFLX is likely to remain as the dominant global SVOD player for the foreseeable future.”
Ahead of the print, Wlodarczak reiterated a Buy on NFLX shares along with a $650 price target. What’s in it for investors? 17% upside from current levels. (To watch Wlodarczak’s track record, click here)
Wlodarczak deems the subscriber estimate as “reasonable” especially considering how much Netflix benefitted from the coronavirus inflicted stay at home measures in the year’s first half. In 1H, Netflix’ subscriber additions rose by over 110% year-over-year to almost 26 million.
And while the economy’s opening, the return of sports and the launch of NBCUniversal’s streaming service Peacock might also negatively impact new subscriber count, and “temporarily effect the stock,” the analyst believes that even if Netflix reports flat quarterly subscriber results, his thesis would remain unchanged.
Why the bullish stance? Wlodarczak explained, “NFLX offers consumers an increasingly compelling unique entertainment experience on virtually any device, w/o commercials at a still relatively low cost. The company appears to operate in a virtuous cycle, as the larger their subscriber base grows (and their ARPU increases) the more they can spend on original content, which increases the potential target market for their service (and reduces existing subscriber churn) + enhances their ability to take future price increases (they are due for an increase as early as Jan 2021) and dramatically increases barriers to entry.”
Additionally, in contrast to the widely held view that new services are likely to eat away at Netflix’ dominance, Wlodarczak considers Disney’s entry in to the frame with its Disney+ streaming service as complimentary to Netflix’ ambitions. Disney+ appears “focused mainly on children under 13 and is likely to exacerbate the swap from an increasingly disappointing traditional PayTV service.”
So, that’s the Pivotal view, what does the rest of the Street have in mind for the streaming giant? Based on 22 Buys, 8 Holds and 5 Sells, the stock has a Moderate Buy consensus rating. However, at $526.42, the average price target suggests shares will stay range bound for now. (See Netflix stock analysis on TipRanks)
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