3 Things To Think About Following Netflix's 'Spectacular' Q4 Earnings

Netflix, Inc. (NASDAQ: NFLX) reported impressive Q4 results on January 18, sending the stock up 5.5 percent the next day. “Whether bull or bear, it seems there are some misconceptions out there surrounding select dynamics within the over-the-top (OTT) ecosystem as well as NFLX-specific tenets,” Loop Capital Markets’ David W. Miller said in a report.

Miller maintains a Buy rating on Netflix, with a price target of $159.

3 Things To Consider

No. 1: Multiple expense levers, apart from content costs.

There seems to be a misnomer that the company’s EBIT margins and net income are less than their potential due to high content spend, Miller commented. He mentioned that Netflix had spent $860.8 million on technology, $982.2 million on marketing and advertising, and $577.8 million on SG&A in Q4. “The point is, there will come a day where this level of spending on these secondary items will not be necessary, and when that happens, net income and FCF will explode.”

No. 2: Netflix can afford to be patient on originals.

Some believe Netflix would not renew a series for a second season in case the first season was not a hit with viewers. Miller pointed out, however, that the company defined a hit very differently than the traditional network establishment.

No. 3: Competition

Bears have been citing competition as a negative. “Sure, there are other OTT services, but there is no competition, at all, for what you get for that $7.99 price point,” the analyst wrote. He further pointed out that Amazon.com, Inc. (NASDAQ: AMZN)'s Amazon Prime priced out at $8.25 per month, which was 3.2 percent more than Netflix’s base service, but offered significantly fewer choices of television series, versus Netflix.

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