SunTrust's Peck Throws Cold Water On Rising Netflix (NFLX) Expectations

SunTrust Robinson Humphrey analyst, Robert Peck, notes investor expectations are rising as Netflix (NASDAQ: NFLX) report nears. However, his proprietary data work points to 1) 1Q Int’l roughly in-line with 2Q a reasonably low hurdle; and 2) 1Q Domestic subscriber upside offset by lower sub adds in 2Q.

International: The analyst expects total/paid sub adds roughly in-line with guidance 4.35m/4.35m (modest upside bias to total, downside bias to paid). His data work indicates absolute sequential sub adds to be driven most by LatAm and Rest of World (launched January). FX should provide a modest tailwind to ARPU leading to revenue ~1% above consensus. However, 2017 consensus contribution margin looks optimistic, calling for 1500 bps y/y improvement, and he is below consensus.

Domestic: The analyst expects 1Q upside offset by lighter 2Q. Proprietary quarterly data work points to paid sub adds of ~2.4m, above consensus at 2.0m. The data work indicates a good content quarter with Fuller House a surprise standout hit. He expects 1Q sub upside to be offset by lower net sub adds in 2Q due to an uptick in churn with the expiration of grandfathered pricing. The analyst is forecasting 2Q net paid sub adds closer to ~200k versus consensus ~600k and our 2Q-4Q sub add forecast is below consensus.

No change to Neutral rating or $115 price target.

For an analyst ratings summary and ratings history on Netflix click here. For more ratings news on Netflix click here.

Shares of Netflix closed at $104.45 yesterday.

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