In upcoming earnings, Netflix subscriber growth could surpass own forecasts

Mike Snider | USA TODAY

Show Caption Hide Caption Netflix Increases Its Subscription Plan for Customers The cost of subscribing to Netflix is going up once again. Remember when it used to cost $7.99? Then it increased to $8.99 last year, and now the Standard plan price is rising once more to $9.99.

Netflix's $1 price increase to its monthly subscription is unlikely to be even a speed bump on the streaming video leader's road to continued growth.

Last week, when Netflix upped the monthly price for basic service — two simultaneous high-def content streams — to $9.99 for new subscribers, there was little clamor from customers. In part, because current customers will continue to pay $8.99 monthly for one year before the rate hike kicks in.

But, in general, the service is a good value, say analysts, heading into the Netflix's third quarter earnings announcement, which is scheduled to be released after the market closes Wednesday. "Netflix is increasingly becoming an always-on service," wrote Stifel Financial Corp. analysts n a note after the price increase Thursday.

The price increase, they said, "is being done from a position of strength. Combined with growing global momentum in the Netflix brand and international growth. We believe Netflix will be able to post strong subscriber growth as the company heads into its seasonally strong (fourth quarter)."

Three months ago, Netflix forecasted its third quarter growth as 1.15 million U.S. streaming customers and 2.4 million international customers — additions that would push the provider's membership to more than 70 million.

Many analysts expect Netflix to actually have larger than expected Q3 growth. Stifel forecasts growth of 3.68 million, an additional 130,000 or so more than Netflix's predictions. In its post-rate hike report, Wedbush Equity Research analysts forecast growth of 1.25 million U.S. subscribers and 2.5 million international subs, and another 2 million U.S. and 2.5 million international subscribers over the last three months of the year.

Wedbush also expects Netflix to beat expectations by posting Q3 revenue of $1.77 billion and earnings per share of 7 cents — the consensus is $1.75 billion and earnings of 8 cents, while Netflix had forecast 7 cents.

Netflix's own forecast for expected subscriber growth for the fourth quarter can drive shares up on Thursday, says BMO Capital Markets analyst Daniel Salmon. "Netflix is set to benefit from growth in the overall internet TV industry, particularly as broadband penetration increases globally, much the same way that cable networks benefited from the growth of cable systems in the (Eighties and Nineties)," he wrote in a report last week initiating coverage of the company.

Giving the stock a market perform rating and a $115 target, Salmon said, "all in all, we view Netflix as a highly dynamic company and an innovation leader in our coverage universe."

Netflix (NFLX) shares were up slightly Monday — 0.2% to $113.58 — after closing Friday at $113.33, up 6% for the week and 14% over the last month.

Stifel's analysts expect shares to rise, advising to buy the stock with a $143 target price. "Combined with growing global momentum in the Netflix brand and international growth, we believe Netflix will be able to post strong subscriber growth as the company heads into its seasonally strong 4Q," they said.

But Wedbush isn't as bullish with its target price of $40 and underperform rating. The price increase, the Wedbush analysts say "increasing content costs rather than pricing power, and expect most, if not all, of the incremental revenue to be absorbed by spending. ... This is the second price increase in 18 months, and we expect another within two years as the expensive Disney deal commences in January. The $1 increase is unlikely to trigger significant customer attrition, but it is insufficient to take Netflix to the high level of future profitability that its valuation implies."

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