As investors look forward to second quarter earnings from Netflix, they could be underestimating a big driver of Netflix’s success.
Netflix’s total number of subscribers is extremely important as the lack of ads on the platform means it’s one of the company’s only revenue sources. Netflix releases subscriber numbers in its quarterly earnings report and according to UBS, investors are majorly underestimating this number.
“Overall, we continue to believe 2017 global net subscriber additions estimates on the Street have potential upside and we expect Netflix shares will respond to the Street raising net adds estimates, if not this quarter, then next quarter heading into what should be a strong 4Q release slate / 2018 roll forward,” Doug Mitchelson, an analyst at UBS, wrote in a recent note.
For the whole of 2017, UBS estimates Netflix will add 704,000 more subscribers than the 18.5 million the rest of Wall Street is expecting.
Mitchelson says Wall Street’s expectations in the fourth quarter are lower because they are expecting a bad third quarter to leak into the fourth. There aren’t any big name content launches in Netflix’s third quarter, which Mitchelson says is a primary driver of subscriber growth.
The fourth quarter should be a bit better, though, with the second season of “Stranger Things,” the Will Smith film “Bright,” another season of “Narcos,” and a potential launch of Marvel’s “The Punisher” series.
If Mitchelson is right that good content drives more subscribers, it could mean the stock sees a bump later this year. Mitchelson rates Netflix a buy with a price target of $US175.00.
Netflix is already up 23.31% this year and is trading at $US157.30 on Wednesday.