Shares of Netflix NFLX climbed over 2.5% Wednesday as part of a three-day run for the streaming television power. The question is why is Netflix stock up even as the hype surrounding Apple’s AAPL upcoming streaming push grows louder?
Netflix received a rather interesting comparison Wednesday morning from AT&T T CEO Randall Stephenson. “HBO is a very, very unique asset," Stephenson said at the Goldman Sachs GS Communacopia Conference. “I think of Netflix kind of as the Walmart of [subscription video on-demand services]. HBO is kind of the Tiffany.”
AT&T recently purchased Time Warner in order to grab assets such as HBO to compete against the likes of Netflix, Hulu, and Amazon AMZN Prime. What's odd about the comparison is that Walmart WMT, which is one of the biggest retailers in the world, has almost nothing in common with upscale jewelry giant Tiffany & Co. TIF. Clearly, this is the point that Stephenson hopes to make. Yet, in terms of successful reach to the largest number of consumers, Walmart is far and away a better company than Tiffany—which is Netflix’s goal.
Investors should also note that last week RBC Capital Markets lifted its price target for Netflix shares from $360 to $440 per share. At the time, this new price target represented a 29% upside to the previous day’s closing price. Shares of NFLX closed Tuesday at $355.93 per share, and jumped over 2.6% Wednesday to as high as $364.48 through mid-morning trading. Therefore, RBC’s new price target still gives Netflix stock 20% more runway.
RBC reiterated its “outperform” rating for NFLX stock. “We also view Netflix as one of the best derivatives off the strong growth in online video viewing and in Internet connected devices (tablets, smartphones, Internet TVs), with our proprietary survey data tracking significantly improved customer satisfaction levels,” analyst Mark Mahaney wrote in the note to clients last week.
Mahaney’s positivity also stems from his firm’s survey of more than 1,500 U.S. consumers that found 68% of Netflix subscribers were either "extremely" or "very satisfied" with the firm’s service. “We believe that Netflix has achieved a level of sustainable scale, growth, and profitability that isn't currently reflected in its stock price," Mahaney continued.
Netflix stock has been a bit turbulent since the streaming firm reported second-quarter financial results that saw it fall short of its own subscriber growth estimates by a wide margin. This looked worse since Netflix had crushed its own subscriber projections as of late. Still, Netflix closed the quarter with 130 million subscribers worldwide, which marked an approximately 25% surge from the year-ago period’s 104 million.
Therefore, investors will be keeping an eye on subscriber growth projections as we inch closer to the third quarter as competition in the streaming TV market continues to heat up. Reed Hastings’ firm is the biggest player in the streaming market at the moment.
But Amazon Prime has plans to roll out even more content. Meanwhile, Apple is set to launch its own streaming service within the next year or so, which will feature shows—and now movies—from Hollywood A-listers. Plus, Disney DIS is ready to release its own stand-alone streaming service in late 2019 (also read: The Apple Story No One Is Talking About This Week).
Looking ahead, Netflix expects to add 650,000 subscribers in the U.S. and 4.35 million internationally in the third quarter.
Our current Zacks Consensus Estimate is calling for the company’s Q3 revenues to surge by roughly 33.7% to reach $3.99 billion. At the other end of the income statement, Netflix is projected to see its adjusted quarterly earnings soar over 134% to $0.68 per share. Netflix is currently a Zacks Rank #3 (Hold).
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The Walt Disney Company (DIS) : Free Stock Analysis Report
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