Netflix Shares Soar to All-Time High After Huge Subscriber Gains

Unbreakable Kimmy Schmidt Summer TCA
Courtesy Netflix

Company's $32 billion-plus valuation makes it more valuable than CBS, Viacom, Dish, Twitter or Discovery

Netflix stock shot up more than 13% Thursday, hitting an all-time high of $541.43 per share in early trading, after the No. 1 subscription-video player packed on about 860,000 more streaming customers than expected in the first quarter of 2015.

The company added 4.9 million streaming subs worldwide in the period, including 2.28 million in the U.S.

Netflix’s big stock move gives it a market cap of more than $32 billion, making it more valuable — at the moment — than media companies including CBS, Viacom and Discovery Communications.

[UPDATE: 5:30 p.m. ET: Netflix shares closed at $562.05 per share Thursday, up 18% for the day. The company now has a market cap of about $34 billion; that makes it more valuable than Twitter ($33.2 billion) and Dish Network ($32.5 billion). Overall, the markets were down slightly Thursday.]

“Overall we view Q1 domestic streaming results as emphatically positive — exceeding revenue estimates and (perhaps more importantly) materially beating net sub adds expectations,” RBC Capital Markets analyst Mark Mahaney wrote in a research note.

With about 41.4 million U.S. subs and 21 million international customers, Netflix is “one of the largest global entertainment subscription businesses,” Mahaney added. “We believe that Netflix has achieved a level of sustainable scale, growth and profitability that isn’t currently reflected in its stock price.” The analyst maintained an “outperform” rating on the stock, with a price target of $600.

Netflix, for its part, attributed the strong subscriber gains to its growing programming lineup, including the Q1 launch of “House of Cards” season 3 and new shows “Unbreakable Kimmy Schmidt” (pictured above) and “Bloodline.” Another eagerly awaited original series, “Marvel’s Daredevil,” hit the service April 10, after the end of the first quarter on March 31.

The company’s original-content strategy is now fueling a virtuous cycle, driving up both gross adds and cutting churn, according to UBS analyst Doug Mitchelson.

“Netflix reminds us of ESPN’s virtuous cycle 15 years ago, when ESPN’s leadership allowed it to acquire more and better sports rights, helping drive strong growth off its leading revenue base and so on,” he wrote in a research note. That resulted in ESPN building an “insurmountable” edge over rivals: “ESPN spends more on sports rights than any other network, and also makes more money on sports rights than any other network.”

On the strong Q1 results, Cowen & Co. analyst John Blackledge raised estimates for Netflix subscriber gains for 2015 and beyond. This year, per his revised estimates, the company will add 6 million U.S. and 11 million international subs (up from the previous 4.8 million and 8.5 million, respectively). The analyst also raised his price target on the stock from $465 to $625 per share.

The most recent quarter stands in contrast to Netflix’s third quarter of 2014, when the company badly missed expectations on sub growth (gaining 3.2 million, 670,000 fewer than it had forecast). That pushed the stock down as much as 26%.

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  1. Mike Kerrane says:

    Netflix is not more valuable than Viacom, CBS or DISH. These companies all have a higher enterprise value (which includes debt) than Netflix. Netflix’s equity is more valuable (it has a higher market cap), but that is not the same thing as enterprise value, and it is meaningless to compare the market cap of different companies. It would cost a buyer more to acquire Viacom, CBS or DISH than it would cost to acquire Netflix. That is because when you buy a company you have to purchase all of the equity and assume all of the debt. Viacom, CBS and DISH chose to finance their expansion with debt rather than equity because it is cheaper for them to do so. To prove this point, suppose tomorrow Netflix decided to issue $10 billion of new bond debt and use the proceeds to pay a one-time dividend to shareholders. After the dividend, NFLX market cap would be $10 B lower. Would this change the value of Netflix’s enterprise or your opinion of the value of Netflix’s business? No, the cost to acquire Netflix would be the same, but you would pay less for the equity and more to assume the debt. The enterprise value would be the same. To compare the market cap of two different companies has no meaning, but many publications do it anyway. By the way, the value of DISH’s spectrum alone may be worth more than Netflix.

  2. cy12 (@cy12) says:

    This is bad for the production industry. If Netflix becomes too strong, it will start dictating terms and conditions and prices of content. As a producer you dont want there to be one global platform for all filmed entertainment, you want multiple platforms you can sell content to. Internet platforms have a tendency to become dominant global platforms lie Amazon. Studios need to stop feeding the beast.

    • nerdrage says:

      You’ve figured out what’s in store for Hollywood, good for you. Few people get it yet. Netflix, Amazon, HBO and whoever else can play the global streaming provider game will bulldozer the existing distribution business, eradicating broadcast, cable and the localized streaming companies all over the world. There’s simply no way to compete with the cheap, easy, immediate access of a global streaming distributor, with the double-whammy economic advantage of eliminating middlemen and economies of scale.

      There will still be multiple platforms, I’d guess three or so major companies, plus boutique services like HBO handling their own stuff, and there’s always movies, although that will be dominated by superhero blockbuster stuff. So not a lot of places to sell content, which will hold down costs and allow each service to get global licenses to content. The lack of global licenses is a consistent complaint from pirates and an excuse for piracy.

      But studios are not driving this, consumers demand is driving it. People are fed up with overloaded ads in broadcast and extortionate cable rates. The studios fed the wrong beast.

    • Anonymous says:

      Boo fucking hoo. Rents and housing prices in Malibu, Santa Monica, Brentwood, Bel Air and Beverly Hills may ease down ever so slightly,, and perhaps it might be a touch easier to reserve a table at Nobu, but I think the ‘production industry’ will survive.

      The ‘production industry’ includes riggers, craft services, hair and makeup artists, drivers, construction workers, etc. and employs people in most states and many countries, and last time I checked Netflix is in the business of content creation. If anything, Netflix is driving prices higher right now – there may need to be some consolidation or realignment in the industry to deal with all the content being produced. That’s your real concern, not availability of distribution channels.

  3. Sytten DeMai says:

    Can’t wait for Comcast and TimeWarner to be DEAD.

  4. count of monte says:

    I would also hoot If Netflix could be reliable in delivering DVD’s for all the content they can’t stream.

  5. cristo says:

    Now, if Netflix and Comcast could get together to deliver a reliable, continuous signal, that would be something to hoot about.

  6. In January you wrote an article saying they ended 2014 with 57.4 million subs. In this one you say they added 4.9m but you’re still going with 57 (39+18). So they have 62 million subs and change. And with Daredevil’s strong word of mouth, Jessica Jones coming later this year, and rumors of more Star Wars coming – they’ll have 65 by summer and 70 by 2016! 62 million X $8/mo (minimum!) – makes for profits near that of a theatrical blockbuster every month.

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