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In a Thursday report, he maintained his “outperform” rating on Netflix shares and increased his price target for them by $4 to $489, meaning still “about 11 percent upside.”
Miller wrote that he was raising his subscriber numbers for the latest quarter “primarily due to what we still believe is a ‘cocooning effect’ at hand due to fears surrounding the coronavirus.” And he highlighted: “Not only is Netflix’s service impervious to the effects of the virus, but because the price is so low, it is impervious to any derivative recessionary effects that may arise as a result.”
As such, he raised his estimate for the company’s U.S. and Canada net subscriber additions from 500,000 to 550,000 and his international adds estimate from 7.0 million to 7.4 million.
Netflix, led by CEO Reed Hastings, earlier this year shared guidance that calls for the net addition of 7.5 million subscribers worldwide in the second quarter. “We are now assuming the company adds 7.95 million, which … could prove conservative, as we saw with the first-quarter release,” which blew past Wall Street estimates, Miller wrote.
The analyst also highlighted Netflix management’s weak track record in forecasting second-quarter subscriber trends in recent years. “Our brand new subscriber prognostication could prove especially conservative in light of what has happened in the past regarding second-quarter subscriber guidance versus results,” he suggested.
“For reasons not completely clear to us, Netflix has had trouble in the past predicting subscriber growth in a June quarter, with the most egregious example being last year’s second quarter, in which management had predicted subscriber guidance of 5.0 million, only to produce a mere 2.7 million,” he explained. Similar things happened in 2016 and 2018. But Miller concluded: “We do believe that the initial 7.5 million guidance bogie takes the aforementioned effects into account, and with the effects of COVID-19 still a notable factor, we feel highly confident in [our] new prognostication.”
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