“This would mark the first-ever annual contribution profit from our international segment,” the streaming video giant says.
Netflix on Monday not only beat second-quarter earnings expectations — as hit originals, such as House of Cards and Orange Is the New Black, drove better-than-expected subscriber gains — but also hit some key milestones in its global expansion.
The company in a letter to shareholders highlighted that it “crossed the symbolic milestones of 100 million members and more international than domestic members” in the latest quarter, ending it with 52.03 million international and 51.92 million U.S. subscribers.
“We are making good progress with our international expansion as improving profitability in our earlier international markets helps fund significant investment in our newer territories,” Netflix said. “As a result, we expect positive international contribution profit for the full year 2017, at current foreign exchange rates. This would mark the first ever annual contribution profit from our international segment.”
Jefferies analyst John Janedis, who has a “hold” rating on Netflix’s stock, raised his price target on it from $141 to $165. “Although higher cash burn expectations are a concern, we expect the stock will continue to be driven by accelerating sub growth and profitability in the near term, particularly in international markets,” he wrote in a report.
“Management now expects the international segment will reach profitability in 2017,” the analyst said. “While North America, Latin America, and Europe are all performing well, management indicated that Asia is in an earlier stage of growth and will receive more investment going forward. We expect the company will continue to focus on international partnerships with distributors (similar to Altice) to supplement their direct-to-consumer offering.”
Cowen analyst John Blackledge also emphasized that the company posted a “significant” upside surprise in terms of international subscribers “as Netflix beat expectations in all large international markets.” The company’s third-quarter forecast for international subscribers came in at 3.65 million, “well above our 2.85 million estimate and better than consensus of 3.20 million,” he added.
Given the strong results, Blackledge increased his full-year 2017 subscriber and financial estimates and boosted his target price on Netflix shares to $197 from $170, reiterating his “outperform” rating.
The company’s forecast for an international profit contribution did not surprise him too much though, he said. “Netflix expects total international contribution margin to be positive in 2017 (for the first time),” the analyst wrote. “We had already modeled a small positive estimate.”
Guggenheim Securities analyst Michael Morris increased his price target on Netflix’s stock by $10 to $190 on the company’s earnings and subscriber update and continues to have a “buy” rating on it. In a note to investors, he emphasized: “The international growth opportunity remains the most impactful component of our long-term bull thesis on Netflix.”
by Georg Szalai