Source: Via Netflix
Much of the recent gains have come after the company blasted past Q3 earnings and subscriber growth estimates by Wall Street in October.
The subscription video on demand provider also exceeded top line expectations, the first time it managed to do so in six quarters.
Mellowing on Netflix Stock
Netflix stock’s latest rally has come thanks mainly to Wall Street mellowing on the company. After souring on NFLX stock earlier in the year, Wall Street is now issuing a mea culpa saying the company’s future is not as bad as it had feared. Netflix stock now sports a pretty decent Wall Street scorecard: 24 Buy ratings, 13 Holds and 7 Sells.
Meanwhile, NFLX’s mean price target has jumped from $103.98 in October to $124.10 currently, a 19% increase and slightly under the current Netflix stock price of $125.5.
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Despite the rally, NFLX stock has still underperformed the market with a year-to-date return of 9% vs 10.7% by the S&P 500.
Netflix stock has become a famous battleground stock due to worries about slowing subscriber growth especially in its pivotal domestic market. However, Q3 blew expert estimates out of the water, with domestic subscriber growth clocking in at 370,000 vs the 304,000 consensus.
The international market did not disappoint either, with subscription growth of 3.2 million beating the consensus of 2 million. Mind you, that growth came in the midst of a price ”ungrandfathering,” where older subscribers with cheaper plans were automatically upgraded to the more costly standard plan.
Oppenheimer thinks that NFLX estimates on Wall Street are still too conservative and sees possible upside in upcoming earnings reports.
Famous Netflix stock bear, Evercore ISI, is the latest analyst to give a thumbs up for the stock , raising the shares to “Hold” from “Sell” citing declining competitive threats. According to Evercore’s Ken Sena:
“We find that much of the competition we feared seems to be gaining little traction, at least not to the degree necessary to merit the same level of concern.”
Here, Sena is refering to NFLX competitors Amazon.com, Inc. (NASDAQ: AMZN ) and, to a lesser extent, Hulu. Amazon Prime boasts about 50 million members compared to the 86.7 million members by Netflix and 12 million by Hulu. Amazon recently unbundled its streaming video service, meaning that you don’t even have to be an Amazon Prime member to subscribe. The service also comes with some nice perks, including being a dollar cheaper than Netflix’s standard plan and it also offers 4K content.
Meanwhile, Hulu is owned by four of the six biggest cable companies. As you might imagine, it has been getting preferential treatment when bidding for content from the cable companies against its streaming rivals, leading to higher content costs for Netflix.
But a Sandvine report on internet trends  revealed that NFLX pretty much dominates the streaming video space. The report ranked Netflix as the No.1 downstream application gobbling up 35.2% of North American downstream bandwidth compared with just 4.3% for Amazon Video. Hulu did not even appear in the top 20. So this essentially tells you that Netflix’s two rivals are less popular than you probably suspected.
NFLX Stock and the Spiraling Content Costs
Despite the bullishness surrounding Netflix, some long-term concerns remain, including the company’s spiraling content costs. NFLX has been investing very heavily in original content in a bid to gain a long-term content moat. So far, we can surmise that this has been working judging by the company’s healthy growth and the fact that its rivals have not been able to trouble it much.