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Buy Netflix (NFLX) Stock After International Expansion Upgrade?

Shares of Netflix NFLX surged over 4% Friday on the back of an analyst upgrade, which helped cap off a strong week for the streaming TV titan amid what had been a dismal post-earnings stretch. So let’s take a look at the reasoning for the upgrade, along with some other Netflix news, before we see if it might be time to buy Netflix stock.

Upgrade

SunTrust analysts raised their rating for Netflix stock from “hold” to “buy,” citing the potential for impressive subscriber growth in the third quarter. “The stock pullback post the 2Q subs miss (which we attribute to '13 Reasons Why' and World Cup, as previewed) leaves us with ~20% potential upside from current levels," analyst Matthew Thornton wrote in a note to clients Thursday.

“More important, our India study shows NFLX initial original series resonating quite well with interest in NFLX rising (including relative to competitors) into more originals coming.”

The SunTrust analysts said that their firm's analysis of web search trends pointed to the possibility that Netflix can add 5 million international subscribers during Q3, which comes in well above Netflix’s projection of 4.35 million. Thornton did lower his price target for Netflix from $415 per share to $410 per share. The slightly lower price target still represented about a 21% upside from NFLX’s closing price of $339.17 on Thursday.

Recent News

On top of the SunTrust upgrade, investors might be pleased to note that Netflix is hoping to move away from paying Apple’s AAPL app store tax. The streaming firm is currently testing a workaround that directs potential users to its mobile website when they try to sign up for Netflix in Apple’s app store. The trial run is reportedly live in 33 countries, according to TechCrunch.

Apple takes a 30% cut of all subscription purchases made in its app right off the top every month. Meanwhile, Netflix is able to keep the whole monthly subscription fee if users sign up for its streaming service through its own website and log-in through the application later. Therefore, Netflix would be able to make a lot more money if it were able to bypass Apple’s fees.

Netflix also began to test short ads for other NFLX content during the countdown period before the next episode of a show automatically starts to play. The idea for Netflix is to keep users engaged, and promoting new content seems like a logical step. “We are testing whether surfacing recommendations between episodes helps members discover stories they will enjoy faster,” Netflix wrote in a statement. “It is important to note that a member is able to skip a video preview at any time if they are not interested.”

Overview

Netflix must walk a thin line in its experiments with ads even for its own content since many users joined to avoid unsolicited ads altogether. And one of the last things that Netflix should do is alienate some consumers even in the slightest way since the firm faces heightened competition.

Amazon AMZN is actively spending billions to improve its offerings on Amazon Prime, which includes not only big-budget action series but also indie films with A-list Hollywood stars—and sports content. Plus, Disney DIS is ready to launch its stand-alone streaming service in late 2019, with Apple set to dive into streaming TV as well.

Time to Buy?

Shares of Netflix were cruising along until the company reported its second-quarter financial results, which on their face were strong. Revenues jumped 43% to hit $3.91 billion last quarter and earnings soared. But NFLX added 1 million fewer subscribers than it expected, which looked even worse since the firm had surpassed its own subscriber forecasts in seven out of the last nine periods, including massive beats in the trailing two quarters.

Reed Hastings’ firm had seen its stock price sink roughly 12% since it reported its earnings in mid-July. Yet, Netflix’s recent dip is a reason to consider buying shares of NFLX because it seems hard to think that the firm won’t see its stock price climb back up as its growth story isn’t over just yet—even if it looks a bit more uncertain these days.

 

Netflix closed the quarter with 130 million subscribers worldwide, which marked roughly 25% growth from the year-ago period’s 104 million. Looking ahead, the company expects to add 5 million new subscribers during the third quarter, with 650,000 projected in the U.S. and 4.35 million internationally.

Plus, Netflix is projected to see its Q3 revenues surge by roughly 34% to reach $3.99 billion, based on our current Zacks Consensus Estimate. Meanwhile, its adjusted quarterly earnings are projected to skyrocket over 134% to $0.68 per share.

However, Netflix has received 15 downward earnings estimate revisions for its current fiscal year, against only two positive changes, within the last 60 days. Therefore, some investors will want to remain a bit more cautious about NFLX, while others might want to buy in on the dip. 

5 Medical Stocks to Buy Now

Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.

New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.

Click here to see the 5 stocks >>
 


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The Walt Disney Company (DIS) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
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