Shares of Netflix (NFLX) are on the rise on Wednesday after the company reported fourth quarter results and said it had surpassed 200M subscribers for the first time. The streaming service giant also said it was considering the potential to buy back some of its stock. Following last night's news, both UBS and Wells Fargo upgraded the stock to Buy-equivalent ratings. While increasing the firm's target on Netflix to $340, Wedbush analyst Michael Patcher kept an Underperform rating on the stock as he continues to question its valuation.
RESULTS: On Tuesday after market close, Netflix reported fourth quarter earnings per share of $1.19 and revenue of $6.64B, with consensus at $1.39 and $6.63B, respectively. The company also reported fourth quarter global streaming paid net additions of 8.51M. Netflix said in its quarterly letter to investors that, "Average paid streaming memberships increased 23% year over year in Q4, while average revenue per membership was flat year over year both on a reported and foreign exchange neutral basis. Revenue was 1% higher than our guidance forecast, as paid net adds exceeded our 6.0m projection by 2.5m... For the full year, our 37m paid net additions represented a 31% increase from 2019's 28m paid net adds. We're becoming an increasingly global service with 83% of our paid net adds in 2020 coming from outside the UCAN region."
For the first quarter, Netflix sees earnings per share of $2.97, revenue of $7.13B, and global streaming paid net additions of 6.0M.
STRONG SUBSCRIBER GROWTH: Following the quarterly results, UBS analyst Eric Sheridan upgraded Netflix to Buy from Neutral with a price target of $650, up from $540. The analyst said the key takeaways from the company's fourth quarter report included the continued strong global subscriber growth, continued levels of content investment, and a "multi-year" narrative for margin expansion and free cash flow growth made more "explicit" by management comments. Sheridan believes more investors will be ready to "marry growth and valuation multiple" for Netflix after this quarter.
Meanwhile, Wells Fargo analyst Steven Cahall also upgraded Netflix to Overweight from Equal Weight with a price target of $700, up from $510. While fourth quarter net additions of 8.5M beat expectations, the company's operating leverage "really impressed," Cahall told investors in a research note, adding that Netflix is now "effectively cash sustaining." The analyst believes that with "little to hinder pricing growth," and the subscriber base still expanding, Netflix can afford to "grow cash content spend AND deliver strong operating leverage." He sees the long-term economics "providing a catalyst runway" for Netflix shares.
'NICELY BETTER-THAN-EXPECTED': Pivotal Research analyst Jeffrey Wlodarczak raised the firm's price target on Netflix to $750 from $660, while keeping a Buy rating on the shares after the company reported "nicely better-than-expected" fourth quarter subscriber and financial results, "conservative" first quarter subscriber guidance and a better-than-expected first quarter financial forecast. Further, management officially confirmed they no longer need outside capital to fund their business, and raised their 2021 free cash flow forecast to flat from negative $1B, the analyst added. He expects Netflix will continue to demonstrate pricing power "as the service remains a relative entertainment value for best-in-class entertainment."
Also keeping an Overweight rating on the shares, Piper Sandler analyst Yung Kim raised his price target on Netflix to $652 from $643. Netflix continues to push for global subscribers with competition intensifying, but the streaming landscape can support multiple players, with Netflix the industry leader, the analyst argued.
Morgan Stanley analyst Benjamin Swinburne also raised the firm's price target on Netflix to $700 from $650 and keeps an Overweight rating on the shares, stating that the "moment has arrived" that he has long believed would come when the company moves to "sustained and substantial" annual free cash flow. His new forecast for Netflix to begin share repurchases later this year, and assumption for $2B in share repurchases during the second half of 2021, compares to his prior estimate of buybacks coming in 2023, Swinburne noted.
Jefferies, Cowen, Truist, Deutsche Bank, Canaccord, Monness Crespi, Barclays, KeyBanc, and JPMorgan also raised their price targets on Netflix. They all have Buy-equivalent ratings on the name.
'FINAL NAIL IN THE BEAR CASE COFFIN': Keeping a Neutral rating on the shares, Credit Suisse analyst Douglas Mitchelson also raised his price target on Netflix to $586 from $525. The analyst noted that Netflix "hammered the final nail in the bear case coffin" with expectations for stock repurchases beginning in the second half of 2021. Mitchelson also noted that the fourth quarter was well ahead with 8.5M net adds versus consensus and guidance of 6M. The beat was high quality, coming from EMEA and not overweighted to APAC or mobile net adds, he added.
WEDBUSH STILL QUESTIONS VALUATION: Still bearish on the stock, Wedbush analyst Michael Pachter raised the firm's price target on Netflix to $340 from $235 but kept an Underperform rating on the name. The analyst acknowledged that Netflix continues to exceed expectations for subscriber growth, and has executed extremely well during the pandemic. However, while he is far more constructive about Netflix than he has been at any point in nearly a decade, Pachter continues to question its valuation. Optimism about the company's potential to generate free cash flow growth of more than $1B "seems misplaced," he contended.
PRICE ACTION: In morning trading, shares of Netflix have gained over 14% to $573.18.
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