Netflix is 'getting closer to escape velocity'

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Netflix continues to top Wall Street’s expectations, and the company is nearing “escape velocity” from its streaming competitors, according to Credit Suisse.

“Netflix continues to reap the benefits of its programming win streak, as it wields its large content acquisition budget as a weapon to put greater distance between itself and its competitors.” analyst Stephen Ju said in a note to clients Tuesday titled “Getting Closer and Closer to Achieving Escape Velocity.”

“We find it hard to argue with the accelerated pace of subscriber additions as the conceptual proof of its capital allocation decision, and we also expect the Street to continue to underwrite the investments,” Ju said.

Credit Suisse raised its price target for Netflix shares to $US330 from $US260 following the company’s first-quarter results, released Monday afternoon. The streaming giant added 1.96 million new customers domestically and 5.46 million internationally – both above well above Wall Street estimates.

The company said it earned $US0.64 a share on revenue of $US3.7 billion, both in-line with expectations.

Credit Suisse’s new price target and reiterated “neutral” rating brings it up to par with the Street’s average target of $US322, but the firm is still feeling the anxiety shared by other sell-side research departments. Netflix’s plan to spend $US8 billion on 700 pieces of original content this year is drastically increasing its negative cash flow and debt load, worrying analysts.

“We remain on the sidelines for now on balanced risk/reward and maintain our Neutral rating,” Ju said in the note

Netflix’s competitors have also taken up markedly different approaches to Netflix’s intense investments in content.

“In a crowded marketplace, it matters how you put things out into the world,” HBO’s president of original programming Casey Bloys told The Hollywood Reporter this week. “We don’t put a new show out every week. We take our time, and we try to make every show feel like an event – something special because they are special to us.”

For now, Netflix’s binging on original content seems to be paying off. Shares of the company have easily outpaced their so-called FAANG peers in 2018, rising 56% compared to second-place Amazon’s 24%.

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