Betting on original shows, Netflix in pole position to win over more subscribers

July 19, 2017 - 3:09 PM
InterAksyon file photo

Twenty years after Reed Hastings co-founded Netflix Inc, and a decade after the company introduced video streaming, it hit another milestone – one that is key to its ability to sustain its scorching pace of growth.

International subscriber count increased 8.6 percent to 52.03 million at the end of the June quarter, eclipsing domestic customer numbers of 51.92 million, Netflix said on Monday.

The company’s shares jumped as much as 9.7 percent to a record high of $177.44 on Tuesday, on track to add roughly $7 billion to Netflix’s $70 billion market value.

Betting on original shows puts Netflix in pole position to win over more millennials who are shunning traditional television, analysts said.

Netflix has a new-found ally as well: pay-TV platforms.

Several companies such as Comcast Corp, Virgin Media in UK, and Altice in France are bundling Netflix into their pay-TV offerings, which could rapidly ramp up viewer numbers in younger markets, Morgan Stanley analysts wrote.

At least 17 brokerages raised their price targets on Netflix. Morgan Stanley and JP Morgan were the most bullish, each raising their target to $210.

The median price target is $192.50.

“We believe the rapidly growing content offering led by originals, that in aggregate garnered 91 Emmy nominations last week, drove the stronger new sign-ups,” Morgan Stanley analysts wrote in a research note.

This year, original TV shows including “Stranger Things”, “The Crown” and the latest season of Kevin Spacey-starrer “House of Cards” brought in more customers than Netflix had predicted for the second quarter.

Netflix has a long way to go to get more content to please more members, Hastings said on a conference call on Monday, adding that positive returns made him comfortable that the company should continue to invest in original shows.

The company has often been criticized for spending too much on content. It said earlier it planned to spend about $6 billion this year for original shows and expected to have negative free cash flow of $2 billion to $2.5 billion.

While most analysts backed the company’s strategy favoring scale over profit, a few disagreed.

“We think that Netflix is destined to be a cash burning high growth company until it changes its strategy and accepts its fate as a highly profitable slow growth company,” said Wedbush analyst Michael Pachter, a long-time critic of the company.

He has an “underperform” rating and a $82 price target.