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Netflix Has Great Prospects, but Success Is Priced in, Says Top Analyst
Stock Analysis & Ideas

Netflix Has Great Prospects, but Success Is Priced in, Says Top Analyst

The year’s final quarter is upon us, and 3Q results will soon start pouring in. Netflix (NFLX) will report earnings on Tuesday October 20, and ahead of the print Stifel analyst Scott Devitt has been mulling over the quarter’s available subscriber data.

While the 5-star analyst concedes that “a more modest guide, controversial content, and uninspiring app engagement readouts have likely put a tighter band on expectations heading into 3Q results,” he claims many of the factors that have driven Netflix’ subscriber count to new heights during the pandemic, remain intact.

These include “a dearth of events and fewer out of home entertainment options, less compelling linear programming, and general domestication.”

What these micro factors point to, says Devitt, is the expectation of “a solid subscriber outcome for 3Q.”

Devitt estimates Netflix added 4.1 million global paid subscribers in Q3, ahead of consensus and company guidance, which both roughly expect 2.5 million new additions.

App engagement data appears to suggest Netflix’ guidance is just about right, implying net adds of 2.8 million. So, how does Devitt arrive at the higher estimate?

The analyst explained, “App engagement data has meaningfully under-indexed versus actual net adds beginning with 1Q:20 (actual adds were 1.9x and 2.4x app implied adds in 1Q / 2Q), likely because of a more meaningful shift to non-mobile usage (CTV / MVPD / console / web) as people spend more time at home. We think it’s reasonable to assume this trend largely carried into 3Q and therefore see at least some upside to the +2.8mm net adds implied by our mobile engagement tracker.”

Therefore, because of “incrementally higher subscriber expectations as well as a minor benefit from updating FX in our model,” Devitt increased the price target from $500 to $520. There’s modest upside of 3% from current levels and, as such, Devitt’s rating stays a Hold. (To watch Devitt’s track record, click here)

Overall, Netflix still has robust support, although some recent ratings appear more cautious. Based on 22 Buys, 8 Holds and 5 Sells, the stock has a Moderate Buy consensus rating. At $527.94, the average price target suggests a modest upside of 4%. (See Netflix stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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