With Netflix slated to release its second-quarter results on July 17, analysts are already chiming in with their predictions, with two influential stock pickers expecting strong subscriber growth for the SVOD pioneer.
In separate reports this week, UBS Securities media analyst Doug Mitchelson and Morgan Stanley media maven Ben Swinburne wrote they expect Netflix’s domestic subscriber growth to rebound to 600,000 or more additions in Q2, a turnaround from the 162,000 additions in the same period last year.
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Last year’s Q2 was marred by what Netflix said were unfavorable press reports that focused on an expected price increase. Last year, Netflix “un-grandfathered” early subscribers, which raised charges for many long-time customers by $2 per month.
With that behind it, both Mitchelson and Swinburne expect a return to robust growth rates.
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In his report, Mitchelson predicted Netflix would add 600,000 domestic and 2.6 million subscribers in the quarter, in line with company guidance. He added that he expected the momentum to continue into the seasonally strong third quarter, with domestic subscriber rolls increasing by 640,000 and international customers rising by 3.5 million.
“It’s still all about the subs,” Mitchelson wrote, adding that he was slightly concerned about a lighter original programming slate in the period – five new titles compared with 10 in the previous year.
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Swinburne was equally optimistic about subscriber growth – he estimated U.S. customers would rise by 600,000 and international subs by 2.6 million. He predicted Q3 U.S. additions would be 630,000 in Q3 and 3.25 million internationally.
In his note, Swinburne wrote that Netflix has doubled the book value of its content assets in less than two years to about $11 billion, more than that of traditional programmers like AMC, Viacom, Discovery and Scripps Networks combined. He noted that traditionally film and TV groups (including Time Warner) turn $1 of content book value into between $2 and $4 of revenue, compared to Netflix at $1 of revenue for every $1 of content book value.
“Our current estimates for revenue and content spend imply that the roughly 1:1 ratio for Netflix remains in the long-term, supporting a profitable and high return on net operating assets (RNOA) business,” Swinburne wrote. “However, these admittedly imperfect comps point to the potential for materially higher earnings power than the market appreciates today.”
