Netflix Inc. shares traded lower Wednesday after the company reported a third-quarter earnings beat.
Netflix reported third-quarter adjusted earnings per share (EPS) of $3.19, beating consensus analyst estimates of $2.56. Third-quarter revenue was $7.48 billion, up 16.3 percent from a year ago and in-line with analyst estimates.
Netflix also reported 4.4 million net new paid subscribers, well ahead of Wall Street expectations of 3.84 million subscribers. That number was likely boosted by the company’s hit Korean drama “Squid Game,” which Netflix said was viewed by 142 million member households in the first four weeks following its release.
Bullish 2022 Outlook
Morgan Stanley analyst Benjamin Swinburne said the impressive third-quarter numbers give him increased confidence in his bullish outlook for another strong year of growth in 2022.“The strong 4Q guidance builds off a better than expected 3Q and reinforces the investment case for NFLX shares as it begins to exit the COVID related impacts to the business over the past 18 months,” Swinburne wrote in a note.
Truist analyst Matthew Thornton said original content, gaming upside, and share buybacks should continue to support the stock.
“We remain constructive given the strong content path, nascent gaming narrative, and buybacks, with our long-term thesis unchanged (durable/predictable/growing core with optionality),” Thornton wrote.
Rosenblatt Securities analyst Mark Zgutowicz estimates “Squid Games” alone contributed about 900,000 net subscriber additions in the third quarter.
Impressive Content Slate
Bank of America analyst Nat Schindler said Netflix’s numbers represented a “solid recovery with large content launches ahead.”“We continue to see a long runway for Netflix to increase its market share from linear TV, and we believe that it is in a strong position to continue raising prices as its engagement continues to increase,” Schindler wrote.
KeyBanc analyst Justin Patterson said Netflix’s fourth-quarter content slate is unprecedented.
“Given momentum entering the quarter and Netflix’s unprecedented 4Q slate (e.g., Money Heist Part 2, The Witcher, major films, etc.), we believe there is an upward bias to estimates, particularly as APAC ramps,” Patterson wrote.
BMO Capital Markets analyst Daniel Salmon said “Squid Game” is just the beginning of a strong upcoming content slate for Netflix heading into 2022.
Premium Valuation
Raymond James analyst Andrew Marok said subscriber guidance for the fourth quarter and 2022 was mostly in-line with expectations, but Netflix shares are appropriately valued at around 9 times 2022 sales.“The solid 4Q guide goes some way toward easing concerns around the sustainability of demand trends, and a more balanced content pipeline in 2022 should usher in somewhat of a return to normal,” Marok wrote.
Wells Fargo analyst Steven Cahall said Netflix shares are expensive, but the company’s ability to consistently grow earnings and add subscribers makes the stock worthy of a premium valuation.
“We think valuation is the wrong thing to focus on, while quality and sustainability of growth is the right thing and the result of compelling customer acquisition and retention efforts,” Cahall wrote.
Needham analyst Laura Martin said Netflix needs to add an add-supported, lower-priced subscription tier to expand its total addressable market and stave off lower-priced competitors.
Ratings and Price Targets
- Morgan Stanley has an Overweight rating and $700 target.
- Bank of America has a Buy rating and $750 target.
- Raymond James has a Market Perform rating.
- BMO Capital Markets has an Outperform rating and $700 target.
- Rosenblatt Securities has a Neutral rating and $450 target.
- Wells Fargo has an Overweight rating and $800 target.
- Truist has a Buy rating and $690 target.
- Needham has an Underperform rating.
- KeyBanc has an Overweight rating and $690 target.
