‘Stranger Things’ pushes Netflix Q3 subscriber gain, but analysts remain lukewarm

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Netflix saw a huge boost in its stock price on Monday after posting better-than-forecast third quarter results -- partly driven by the success of two breakout original series, Stranger Things and Narcos -- but analysts are sounding a cautious note on the fourth quarter and into 2017 as its international subscriber numbers are growing slower than anticipated.

At least one analyst firm, MoffettNathanson, cautioned investors against putting too much value into the SVOD provider’s international markets.

“When the year started, most analysts -- ourselves included -- assumed a materially higher run rate,” said Michael Nathanson, in a MoffettNathanson investor note. “Looking to 2017, we now forecast absolute international subscriber increases to be a million below 2016, which may turn out to be too high given comments about 1Q 2016 comps and the anniversaries of the service’s Spain, Italy and Portugal launches.”

The analyst also pointed out Netflix’s huge free cash burn of $506 million in the third quarter. “We continue to be surprised that no one seems to care that Netflix, which has impressively grown to 83 million paying subscribers, will still lose -$1.5 billion in cash in 2017,” Nathanson wrote.

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MoffettNathanson rated the stock as “neutral” with a target price of $85, forecasting a 2016 full-year EPS of 41 cents.

Analyst firm Jefferies was also lukewarm on Netflix, maintaining its stock rating at “underperform” with a price target of $80 and also citing international concerns as a key factor. “(W)e continue to believe that growth going forward could be more moderate than expected, especially given difficult comps against international markets in 4Q16/1Q17,” analysts said in their investor note on Tuesday.

Jefferies also forecast a full-year EPS of 40 cents on revenues of $8.81 billion, shifting its predictions upward from its earlier forecast of 28 cents EPS on $8.7 billion in revenue.

“Management highlighted that better than expected sub growth of 370K in the US segment (vs JEFe: +150K / guidance 300K) and 3.2M in the International segment (JEFe: 1.8M) was helped by strong original content launches (Stranger Things, Narcos S2, etc.),” the analyst firm wrote.

Netflix will be drastically upping its original content output from 600 hours this year, to 1,000 hours in 2017, according to its quarterly letter to shareholders.

But the SVOD provider will likely do so by cutting down on the amount of licensed content on its library, something that could have some of its subscribers howling.