While shares of Netflix Inc (NASDAQ:NFLX) have rallied 19% from their post-earnings lows, "investor sentiment remains mixed to cautious" about engagement growth, the impact of this on revenues and margin expansion, according to JPMorgan analyst Doug Anmuth.
The Netflix Analyst: Anmuth maintained an Overweight rating and price target of $85. Although the company lacks a "single silver bullet to engagement and revenue growth," it has instead a series of ongoing initiatives, "including, most importantly, strong content," he said in the note.
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Netflix’s share of US TV time declined by 40 basis points (bps) year-on-year and 10 bps sequentially in June to 7.9%, while YouTube’s share expanded to 13.8%, the analyst stated. He added that this could have been due to World Cup viewing.
Anmuth estimates the company’s viewing hours to have grown in all regions except in the US and Canada.
In addition to scripted content and film, Netflix is focusing on the following to grow engagement:
- Live events, which is expected to grow from 5% of budget to at least in the high single-digits over time
- Short-form video to satisfy lower commitment engagement and shorter time blocks
- Cloud gaming, with MAUs (monthly active users) growing 11x in eight months
- Partnership deals similar to TF1.
Even with modest engagement growth, Netflix would be able to sustain double-digit revenue growth in the near term, supported by subscription growth (mostly international), pricing changes, and advertising, he further stated.
"We expect NFLX to continue to optimize for revenue growth with ongoing testing of free trials—a modest 2H revenue headwind—and potentially additional bundling opportunities," Anmuth wrote.
NFLX Price Action: Shares of Netflix had declined by 0.08% to $80.08 at the time of publication on Friday.
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