Netflix Stock Shoots to All-Time High After Strong Q1 Earnings

The Netflix juggernaut continues to rage on: The company’s shares popped to a new all-time high Tuesday, a day after Netflix reported better-than-forecast first quarter subscriber additions.

The streamer’s shares jumped 9.2% on Tuesday, closing at $336.06 per share. Netflix reported 7.4 million net streaming subscriber additions in Q1, to stand at 125 million worldwide.

With a current market cap of around $146 billion, Netflix is nearly as valuable as both the Walt Disney Co. and Comcast, which each have market capitalizations of about $154 billion.

“We have big plans for content growth, and you should expect that to continue,” Netflix CEO Reed Hastings said in a recorded Q&A discussing the results on Monday.

Netflix’s strong Q1 results led many Wall Street analysts to revise their financial forecasts for the company. UBS’s Eric Sheridan, for one, raised his price target on Netflix from $345 to $375 per share.

“We see investors willing to bless an approach of blending sub acquisition costs with marketing costs against content that stimulates both acquisition & retention,” Sheridan wrote in a note to clients Tuesday.

Sheridan ticked off two other main points driving Netflix’s share price: The company didn’t suffer a slowdown in sub growth after raising prices in the U.S. and elsewhere, showing signs it has “medium/long term pricing power.” In addition, it has no advertising business, so it’s not as exposed as other large internet companies to potential regulatory headwinds in coming years — an issue that’s come to the fore with the Facebook data-privacy scandal involving Cambridge Analytica.

As Hastings said Monday, “I’m very glad that we built the business not to be ad-supported but to be subscription… We don’t sell advertising, so I think we’re substantially inoculated from the other issues that are happening in the industry, and that’s great.” Hastings, by the way, is a Facebook board member.

And Netflix remains a relatively great value for consumers: Each $1 of monthly subscription paid to Netflix gives a user access to $1.1 billion of content spend – almost twice the ratio of most media companies, according to an analysis by RBC Capital Market’s Mark Mahaney.

In the first quarter of 2018, Netflix’s wholesale agreements emerged as a larger distribution channel, according to Morgan Stanley’s Ben Swinburne. It has launched bundling deals with T-Mobile and others, and last week announced a pact with Comcast, which plans to include Netflix with pay-TV packages. “Netflix has gone from an upstart to a more widely consumed TV ‘network,'” wrote Swinburne, who moderated the investor Q&A with Netflix execs on Monday. Those deals will yield lower net revenue for Netflix on a per-subscriber basis, but will have lower churn — a tradeoff that Netflix “has years of history at this point to assess,” Swinburne noted.

Following the Q1 results, analyst firm MoffettNathanson raised projections for Netflix’s full-year 2018 results, bumping up revenue estimates by 2.5% (to $16.4 billion) and operating income by 8.3% (to $1.8 billion). But principal analyst Michael Nathanson still believes Netflix is hugely overvalued.

“We are left with the continued displeasure of believing the stock is overvalued but not seeing any legitimate fundamental reason for investors to sell the stock,” Nathanson wrote in a note, maintaining a “neutral” rating.

Netflix’s content-buying binge isn’t over: The company told investors it expects content spending to be $7.5 billion to $8 billion for 2018 on a profit/loss basis, in line with its previous estimates. Netflix also said it will “continue to raise debt as needed to fund our increase in original content.” Netflix had $2.6 billion in cash and equivalents as of March 31, along with $6.54 billion in long-term debt and $3.44 billion in long-term content payment obligations.

On a cash basis, Netflix will spend around $12.8 billion in 2018 on content, according to estimates by Cowen & Co.’s John Blackledge. The company’s 2018 slate includes 80 original feature films and 30 localized international original series.

For the current quarter, originals coming to Netflix include season 2 of “13 Reasons Why,” after the freshman season “was one of the most-watched television shows of the year last year around the world,” chief content officer Ted Sarandos said Monday on the investor Q&A. In addition, Netflix Q2 premieres include returning seasons of “Marvel’s Luke Cage,” “GLOW,” “Dear White People,” and “Unbreakable Kimmy Schmidt,” along with comedy feature film “The Week Of” starring Adam Sandler and Chris Rock (set to bow April 27).

“What Netflix has shown you don’t need everything under the sun — you just need enough original programming to keep people engaged,” said Rob Gardos, CEO of Mediamorph, a media and entertainment data management and analytics firm.

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