On Tuesday Netflix shares soared to record highs after they reported a better than expected rise in subscribers for the fourth straight quarter.
Netflix stock gained an impressive 9.2 percent at $336.11 on the back of 12 bullish brokerages together with JPMorgan who raised their target prices to $385.
Doug Anmuth, analyst at JP Morgan said that what’s driving the increase in subscribers is the shift to internet entertainment.
Data released by Netflix showed that compared to last year there was an increase of 50 percent in growth of new users. During the first quarter of this year there were over 2 million new user in the U.S. and an additional 7.4 million new international users.
Revenue and earnings were better than expected which saw the stock gain 5 percent in after hours trading on Monday.
Shares were trading at 226 times earnings on Tuesday and have gained 60 percent for the year. On the S&P 500 index, Netflix has become the top performer with a market cap of nearly $146 billion.
Investing in Original Content-key to Success
Michael Graham analyst at Canaccord Genuity said that Netflixs strength has been its ability to produce great content as the company invests in original content. Resulting in revenues and margins going up. He went on to say that in emerging markets, partnerships are becoming more important.
Netflix plans to invest between $7 and $8 billion in original content for 2018.
Analyst Mark Mahaney at RBC Capital Markets reportedly said that content offering at Netflix has seen a substantial increase in subscribers resulting in dramatic dividends for the company.
Some other analysts also say that the broad range of agreements with wireless service providers has also benefited Netflix. The service providers in turn are bundling Netflix streaming into their own services.
Netflix has deals with Verizon, T-Mobile, Cablevision, Altice USA, Comcast Corp and Cox Communication in the U.S.A. While in Europe they have agreements with SFR Altice in France and Proximus in Belguim.
Other companies are offering heavy competition to Netflix. Amazon, Apple and Hulu are all investing substantially which has resulted in price increases.
Amazon Prime increased its monthly fee for video streaming by $2 in January. In October last year Netflix increased their price in the U.S. and Europe for some of its plans.
Walt Disney Co. who announced that in 2019 they plan to launch their own streaming service will no longer provide new movies for Netflix.
Future Outlook, How High Will Netflix Go?
By the end of 2020, Graham analyst at Canaccord Genuity believes that we could possibly see an increase of 70 million subscribers at Netflix.
With revenue increasing faster than content and marketing spending, Netflix by all accounts is looking forward to a bright and profitable future.
26 out of 46 analysts rate a “buy” for Netflix.
17 of them rate “hold”.
While 3 rate a “sell”.
Right now, today investors have a great opportunity to get good sound potential returns on their investments.