Streaming giant Netflix (NASDAQ: NFLX) had a stock drop to almost 21%, a month later after its second-quarter financial report. It happened as soon as the company posted an unusual miss in its subscriber forecast. 5.15 million Subscribers were added by Netflix globally, ending the quarter with 130 million customers 25% year over year. However, it fell far short of the 6.2 million it aimed for. According to an analyst, investors are exaggerating to the results and undervaluing the attraction of the Netflix model and its rising library of content.
Michael Morris, an analyst of Guggenheim Partners elevated the price target of the company to $420. It was more than 14% above the current levels of stock. It was also the highest among Wall Street analysts. Morris made the case in a note to clients that subscriber gains could considerably surpass what investors are expecting. He wrote the subscriber penetration of Netflix will drastically surpass what is implied in the company’s current valuation. What Netflix offers is a considerable consumer value in price and utility. And an efficient model will continue to support a cycle of quality content creation, distribution and monetization. Going even further, Morris predicted that Netflix subscriber base will be more than double by 2023. It will be topping 285 million subscribers. Morris lays out a case that includes 3 underlying catalysts which will take Netflix stocks higher.
The international expansion of Netflix is booming. Morris trusts that it will continue to do so. In particular, he is enthusiastic about the possibility for growth of Netflix in India. He was noted saying that they see improving broadband infrastructure and a rising population of upper middle class people who use smart phones for potential marketing. He also wrote that Netflix is well equipped to capitalize in this region. Morris predicts by 2021 India will account for over 5.5 million Netflix subscribers.
India is in Netflix’s high priority list. Reed Hastings, the CEO has said, the next 100 million subscribers for them is coming from India, considering the consumer base.
Netflix has been investing there. They have released several programs in recent months which could help drive penetration. The programs have received positive ratings on Rotten Tomatoes, the review aggregation site:
- Lust Stories (Critics: 100%. Audience score: 68%)
- Sacred Games: Season 1 (Critics: 90%. Audience score: 95%)
- Ghoul: Season 1 (Critics: 82%. Audience score: 82%)
Its decade-long head start on the majority of its competitors offers Netflix a technological edge. Netflix has had years to test and work on its streaming interface. The customers who have experimented with other services are probably aware of ease of use, among the things that set Netflix apart from the competition. Morris wrote that they believe that consumers enjoy the growing amount of high-quality content. However, he also believes that there are many people who simply enjoy using the Netflix platform. They predict that in 2018, the company will invest $1.25 billion in technology and development, which is an increase up to 19% (year over year), with a focus on preserving and further enhancing a faultless and enjoyable consumer streaming experience.
More than just streaming
As the library of original content of Netflix grows, its stability of beloved characters will also grow. As per Morris, Netflix will be making a large bet on consumer products, pointing to the company’s poaching of Christie Fleischer from Disney. Fleischer was the ex-head of merchandise and product development at the House of Mouse. She will lead Netflix’s consumer products efforts and as per a Netflix press release, her team will be overseeing retail and licensee partnerships, interactive games, merchandising, publishing, and experiential events. Some think the business could amount up to over $1 billion yearly. As per Morris, this is a signal of Netflix’s ambitions in the space and also a chance for incremental, higher margin investments that should influence Netflix’s efforts of marketing for children’s series and also mainstream originals.
The results will soon be out
It is anticipated that Netflix will report the results of its 3rd quarter on Oct. 16. It will be after the close of market. The subscriber shortfall of the last quarter was an unusual event for Netflix. It occurred during the company’s seasonally slower 2nd quarter. Netflix experienced a parallel miss 2 years ago. But they came roaring back in the months and years that followed. Most likely, it will be the same this time.
It’s not difficult to see Netflix’s potential internationally. You will not find any other streaming service set up like Netflix. And they are already available in almost every country around the world. They have already invested billions in setting up this infrastructure to make the international push. Though Prime Video is available in numerous countries around the globe, Netflix is available in almost every country.