UPDATED: Is Netflix going to turn another boffo earnings report fueled by “quarantine and chill”?
Investors pumped up shares of the streamer to a new all-time high Friday: Netflix stock closed at $548.73 per share, up 8.1% on the day. That outperformed the broader market, with the Dow Jones Industrial Average rising 1.4% and the Nasdaq Composite inching up 0.7%.
The spike came after a wildly bullish Wall Street analyst call on projected second-quarter 2020 subscriber growth. Netflix’s stock surge gives it a market capitalization of more than $241 billion (well above Disney’s current market cap of $215.5 billion).
In a report Friday morning, Goldman Sachs analysts predicted that Netflix will turn in another killer quarter of subscriber growth when it reports Q2 earnings July 16 after market close.
“We believe Netflix could add at least 12.5 million total net paid subscribers in 2Q, primarily driven by accelerating EMEA [Europe, Middle East and Africa] and APAC [Asia-Pacific] penetration and strong growth in the U.S. and LatAm,” the analysts wrote in a report Friday. They reiterated a “buy” rating on the stock and raised their 12-month price target on Netflix shares from $540 to $670 “to reflect our revised estimates and multiple expansion among comparable Internet companies.”
Netflix netted 15.8 million new subscribers in Q1 — its biggest-ever quarterly gain — because of coronavirus lock-down orders, to stand at nearly 183 million worldwide at the end of March. For Q2, the company projected 7.5 million net additions worldwide, versus 6.8 million in the year-earlier period.
“While the thesis ‘if you haven’t subscribed by now, you never will’ is an easy rhetorical [statement], it fails to capture the reality of Netflix’s earlier stage markets and a dramatically changing world that is pushing changes into every corner of consumer behavior (eCommerce, payments, fitness, etc),” the Goldman analysts wrote.
The COVID-19 crisis, the Goldman analysts opined, “is accelerating the shift from traditional content consumption (linear TV, theaters, live events, etc.) to streaming services.” That will “steepen Netflix’s growth curve both in the immediate and long term,” they added.
The buoyant Goldman prediction of another major quarterly subscriber gain for Netflix comes after Cowen & Co. last week also raised the price target on the stock, from $485 to $535 per share. While the Cowen analysts expect Q2 net subscriber adds to be roughly in-line with Netflix’s 7.5 million forecast, they cited proprietary survey data showing an increase in the number of customers who said they would be willing to pay more for Netflix — highlighting the company’s pricing power. Per the firm’s survey, that rose from 47% in December 2019 to 55% in May 2020.
In announcing Q1 earnings, Netflix said it believes the rate of subscriber growth will decline in the second half of 2020. But as coronavirus cases have surged in the U.S., the extended stay-at-home quarantines could benefit Netflix in.
“While [Netflix] management is likely to guide 3Q conservatively given the 1H outperformance and the massive uncertainty in the current environment, we believe consensus estimates for the 2H and beyond remain too low,” the Goldman analysts wrote.