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- Netflix jumped to a three-month high Friday following bullish commentary from UBS. The firm's analysts broke down several key questions surrounding Netflix and the future of streaming itself.
- The analysts also outlined their long-term view that Netflix should achieve higher margins than Wall Street currently expects as its content spend is now at a scale of the "major media companies."
- Watch Netflix trade live.
Netflix shares soared to a three-month high Friday on the back of a bullish UBS report that featured a breakdown of some of the most central questions surrounding the streaming giant.
The report offered shareholders some positive commentary at a time when Netflix is trading about 20% below its all-time high reached last June. Here's a summary of three questions UBS analysts, led by Eric Sheridan, addressed.
"Will original content drive subscriber upside, especially in international markets?"
Sheridan and his team said they expect Netflix's original content slate to drive accelerating growth internationally, particularly with more local, film, and non-fiction content on the platform. They also contend there's still low broadband usage in growing markets like India, where Netflix could expand.
Last month, Netflix said over 45 million accounts watched the Netflix original movie, "Bird Box," in the first week it was released - a record, according to the company.
"Will increasing competition threaten Netflix's market share or pricing power?"
UBS said it expects subscription-streaming video will "come to dominate TV over time," creating opportunities for multiple players and rising competition. Hulu and Amazon Prime Video are gaining market share in the streaming space.
Still, the firm thinks Netflix is well-positioned because of its scale and slate of original content. That's also the driver behind their view Netflix can still command pricing power, or the ability to hold onto users while boosting prices.
"How are subscribers tracking in the US and key overseas markets?"
Domestic and international subscriber growth for the fourth-quarter will likely come in strong given a few factors, the analysts said, citing application downloads, Google search trends for its original content, and others. App-tracking analysis suggests country share of downloads is tilting away from the US, and toward international.
Notably, Sheridan said growth in the US and more matured international markets appears to be plateauing, and that emerging markets in Latin America and Asia, particularly India, are the "bright spots on local language content push."
More broadly, the firm outlined its long-term view that Netflix should achieve higher margins than Wall Street currently expects as its content spend is now at a scale of the "major media companies." The streaming giant's stable of original content was a decisive factor in UBS's rosy view.
"After six months of stock underperformance & key debates emerging about competition, margins & [free cash flow], we think these debates are better understood by investors and reflected in the current stock price," the analysts said.
In its investment recommendation, the firm upgraded its rating on the stock from "neutral" to "buy," and upped its price target from $400 to $410. On Friday, shares were up almost 4% and trading near $337.50, their highest since October 19.
Netflix will report its fourth-quarter results on January 17, with analysts surveyed by Bloomberg expecting earnings of $0.24 a share on revenue of $4.2 billion.
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