Is Netflix, Inc.(NASDAQ:NFLX) is Becoming More Predictable?

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Last week Netflix, Inc.(NASDAQ:NFLX) struck a deal with AT&T Inc.(NYSE:T) whereby the streaming video provider will pay the telecom giant to ensure fast streaming speeds on AT&T’s networks, an AT&T spokesman announced. The spokesman said,

“We reached an interconnect agreement with Netflix in May and since then have been working together to provision additional interconnect capacity to improve the viewing experience for our mutual subscribers.”

Financial terms of the agreement have not yet been disclosed.

Netflix, Inc.(NFLX) reported strong second quarter results two weeks ago of $1.15 per share, ahead of the analyst consensus of $1.14 per share according to Capital IQ. Revenue was $1.34 billion, just better than the Street view of $1.33 billion

Despite Netflix’s innovative and entrepreneurial history, there seems to be an emerging near-term predictability around their domestic operations. That predictability is supported by quarterly company guidance that has been relatively accurate over the past few quarters.

The real forecasting challenge for analysts and investors is international streaming. It is literally an open book with little known about individual markets and limited prior history. As Netflix plans to launch new services in six European markets this September, the jugging of core international margin improvement against new territory launch costs is anyone’s guess – welcome to the great unknown.

Many analysts believe that Netflix will, over time, look like HBO in content, margin, pricing strategy, and, unfortunately, subscriber growth. Even after the under performance in the stock year-to-date, some analysts are suggesting to look for a more attractive entry point potentially after the impact of launching new international territories is better understood.

Some of the bullish analysts that weighed in after the company’s earnings report included JPMorgan, who boosted their price target from $500 to $550.  Others that also boosted their price target included RBC Capital, FBR Capital Markets and CRT Capital.  Some firms however were less bullish following results, including Bank of America which reiterated their price target of $294.  Others that were maintaining their view on the stock included Zacks research, Citigroup and Nomura.

On a consensus basis, there are currently twenty buy ratings, fifteen hold ratings and six sell ratings from the firms covering Netflix.  The average price target is $425 which is right about where the stock finished at the end of trading on Friday, just a .06% difference.

 

 

 

 

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