Netflix (NFLX) has enjoyed a strong 2020, boosted by the pandemic’s stay-at-home mandates. However, after an exceptional 1H, the growth has slowed down somewhat.
J.P. Morgan analyst Doug Anmuth highlights recent data which shows that DAU (daily active user) growth has decelerated from approximately 17% year-over-year in Sept to between 16-17% at present and remains more than 3% pts below the peak of 20% year-over-year growth seen in April.
However, Anmuth also adds that the 1st half of 4Q may not be “fully indicative given that 4Q is historically a heavily back-end weighted quarter.”
The analyst also remains unconcerned regarding another recent development which could result in higher churn.
Last month, Netflix announced it is bumping up subscription prices in the US and Canada.
The Standard subscription was raised by $1 to $13.99 from $12.99, while Premium increased by $2 from $15.99 to $17.99.
The last time Netflix raised its subscription price – in 2Q19 – the company posted negative net adds in the quarter. However, Anmuth explained why this price hike is different.
“While each successive price increase should generally feel a bit more friction,” the 5-star analyst said, “We do not expect this increase to pressure net adds much for 2 reasons: 1) The Basic 1S plan (lowest tier at $8.99), which saw its first price increase ever last year, remains unchanged. Basic subscribers are more price-sensitive & we believe that led to persistently elevated churn for a couple quarters after the 2019 increase. 2) The latest price increase comes during 4Q, a period of stronger content, colder weather, & renewed pandemic restrictions in the US, all of which will likely extend into 1Q21.”
These factors, Anmuth believes, will offset the higher pricing.
With this in mind, Anmuth increased his 2021 revenue forecast by 2% to $29.8 billion. Additionally, the analyst increased his Operating Income estimate by 3% to $5.8 billion —both figures are above Street expectations. Anmuth’s net adds estimates stay the same; The analyst believes his forecast for UCAN additions of 2.4 million in 2021 and global adds of 25.4 million are “conservative.”
As a result, Anmuth sticks to an Overweight rating yet boosts the price target from $615 to $628. Investors could be pocketing gains of 32%, should the bullish call play out over the coming months. (To watch Anmuth’s track record, click here)
Across the Street, most analysts are still behind the streaming giant. Based on 21 Buys, 5 Holds and 3 Sells, the stock has a Moderate Buy consensus rating. Given the average price target stands at $580.62, the forecast is for upside of ~20% in the year ahead. (See NFLX stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
