Netflix is loading up on new shows to 'build a global moat'

Altered Carbon. Photo: Netflix
  • Netflix’sCFO said last week the company plans to spend $US8 billion on 700 new shows this year.
  • UBS analyst Eric Sheridan says this will only widen the company’s competitive moat.
  • Sheridan has the most bullish target on Wall Street for the stock.

Netflix is planning to spend some $US8 billion on roughly 700 new original TV shows in 2018 as part of a move that will only widen its competitive advantage, according to UBS.

“Increasingly building out its global production muscle and focusing on content that travels internationally, Netflix has emerged as a content power house that is actively building a global moat,” analyst Eric Sheridan said in a Friday note to clients. “With a strong foothold in North American markets, the company is increasingly looking to international markets for the next leg of subscriber growth.”

UBS raised its price target for Netflix to $US345, the most bullish of analysts polled by Bloomberg. That’s 15% above where the stock opened Monday. By comparison, Wall Street has a consensus target of $US267, about 12.5% below where it currently trades.

Such a huge competitive moat will allow Netflix to stave off any competitors entering the space. Disney, most notably, is planning to launch its own streaming service in 2019. And while growth has slowed at home in the US, international markets are still ripe, says UBS, as evidenced in its most recent quarterly earnings report.

In January, Netflix reported 1.98 million new US subscribers, but 6.36 million internationally for the quarter.

“Out of the existing 700 million global broadband households (excluding China), Netflix has only penetrated ~17% in aggregate – while US penetration has reached ~60%, international penetration remains only ~10%,” Sheridan wrote.

Netflix is up 51% so far in 2018 – well outperforming the rest of its FAANG companions.

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