Netflix (NFLX) is scheduled to report results of its first fiscal quarter after market close on April 16, with a conference call scheduled for 6:00 pm ET. What to watch:
1. SUBSCRIBERS: Netflix's subscriber numbers are a closely-watched measure of the company's growth trajectory. In the fourth quarter, the company reported streaming paid net additions of 8.84M members, including 1.5M U.S. paid membership additions and international additions of 7.3M paid memberships. For Q1, Netflix has forecast streaming paid net additons of 8.9M members, including 1.6M in the U.S. and 7.3M outside of the U.S.
2. ANALYSTS RECENTLY MORE BULLISH: This morning, Deutsche Bank analyst Bryan Kraft upgraded Netflix to Buy from Hold and raised his price target for the shares to $400 from $360. Consensus subscriber expectations for both 2019 and 2020 now seem conservative, Kraft told investors. Further, Netflix shares have "de-rated enough," which makes the risk/reward profile attractive, added the analyst. He sees the company's growth in revenue taking the stock to $400 over the next 12 months as the valuation shifts from 2019 to 2020 estimates. Netflix is winning the battle for talent and "looking more and more like a platform every day, rather than just an application," according to Kraft. BMO Capital analyst Daniel Salmon raised his price target on Netflix to $470 from $440 and kept his Outperform rating ahead of its Q1 report tonight, saying he expects "strong results" from the company. The analyst believes that Netflix still has "room to grow" internationally -- particularly in India and Japan -- while improving its per subscriber leverage on content spend and generating "steady growth of its consumer product licensing revenues."
3. DESPITE NEW COMPETITION: Netflix shares are down 5% since the Disney (DIS) streaming service reveal last week, JPMorgan analyst Doug Anmuth said in a note this morning. Some of this weakness is likely due to the initial $6.99 per month price point for Disney+, the "strong enthusiasm" on Disney's content and management's tone around being "all in" on streaming, said Anmuth. The analyst expects Disney+ will likely be the most competitive streaming offering to Netflix, but he does not view it as a major threat to Netflix subscriber numbers given the company's "quality and quantity" of content. Further, given the "strong global secular shift" toward streaming, there is room for multiple companies to succeed, he contends. Anmuth continues to like Netflix shares into tonight's results as he believes the competitive fears will prove overdone. The Q1 earnings bar has likely come down over the past few days, added Anmuth, who kept an Overweight rating on Netflix shares.
In addition to Disney's recent reveal of details on its planned Disney+ offering, the company is also the majority owner of Hulu following its deal to buy the entertainment assets of 21st Century Fox. Disney has consolidated that Hulu ownership position further with news last night that AT&T (T) agreed to sell its minority stake in Hulu back to the streaming video joint venture. The transaction valued Hulu, which is owned by Disney and Comcast (CMCSA), at $15B, with AT&T's 9.5% interest valued at $1.43B.
On March 25, Apple (AAPL) announced its own original video subscription service, Apple TV+. Pricing and availability for the Apple TV+ service will be announced this fall. The next day, Morgan Stanley analyst Benjamin Swinburne said Apple's TV announcements can be viewed in two parts - as an update to its TV app and the launch of Apple TV+, which includes original content. While Apple's global user base and "massive checkbook" mean investors and competitors should take it seriously, Swinburne also said that Netflix's risk appetite, singular focus, and "ability to bring the best of Silicon Valley to the best of Hollywood" may still be underestimated. Oppenheimer analyst Jason Helfstein also said he does not see Apple TV+ as having any negative impact on Netflix. While a reasonable amount of high-income Apple users will likely subscribe, there is no comparison in the amount of original content compared to Netflix, spending $12B/year versus Apple's $1B, he contended. However, Needham analyst Laura Martin has contended that Apple poses a direct threat to Netflix given its budget, expected "priceless appearances by Spielberg, Oprah, Aniston, and JJ Abrams" as well as its 100% consumer awareness and zero marketing costs. The analyst contended that Apple will be able to bundle games, news, and music with its device sales. It currently has a base of 900M unique users and if it is successful in converting just 10%, that would allow it to fund content with a budget that is 2 to 3 times bigger than than of Netflix, argued Martin.