Advertisement

Netflix Original: New shows drive blockbuster quarter

FILE PHOTO - The Netflix sign on screen is shown on an iPad in Encinitas, California, U.S. on April 19,2013. REUTERS/Mike Blake/File Photo

By Rishika Sadam (Reuters) - It pays to be original. Netflix Corp's surprisingly strong subscriber growth in the fourth quarter allayed concerns about the company's multi-billion dollar investment in original content. The success of new original shows such as Golden Globe winner "The Crown", based on the early years of Queen Elizabeth II's reign, helped Netflix attract 7.1 million new subscribers globally, far more than the 5.2 million analysts had expected. The company's shares jumped as much as 7.7 percent to hit a record high of $143.46 in early trading on Thursday. Even one of the company's most vocal critics appears to have been won over. Wedbush analyst Michael Pachter, who has long had an "underperform" rating on Netflix based on the company's cash burn, said he had been "consistently wrong" about the stock. "It is likely that we will be wrong for a while longer, as there is more quality content than ever before and Netflix has certainly had its share of hits," he said in a client note. Pachter raised his price target to $68 from $60, while keeping his "underperform" rating. At least 19 other brokerages raised their price targets. The median price target is $150.50, 13 percent higher than the stock's close on Wednesday. Netflix's shares have gained more than a third since Oct. 17 when the company reported third-quarter results and said it would invest $6 billion in content in 2017, up from about $5 billion last year. Apart from "The Crown", Netflix's new hits include the sci-fi drama "Stranger Things" and superhero series "Marvel's Luke Cage". "We're seeing the benefits from a deep original content slate that is helping to moderate churn, bring back old customers, and drive solid growth on the international side," analysts at Mizuho Securities wrote in a note. Netflix added about 5.1 million subscribers outside the United States and about 1.9 million in its home market in the quarter. "Investments in local content internationally are complementing Netflix's Hollywood-focused library and helping the platform gain share abroad," Canaccord analyst Michael Graham wrote. Analysts were upbeat even though Netflix projected negative free cash flow of about $2 billion in 2017, compared with negative $1.7 billion in 2016. The company faces competition from Hulu and Amazon.com Inc's Prime Video. Of the 43 brokerages covering Netflix, 25 have a "buy" or higher rating, 13 a "hold" and five a "sell" or the equivalent. (Reporting by Rishika Sadam in Bengaluru; Additional reporting by Derek Francis; Editing by Sayantani Ghosh and Saumyadeb Chakrabarty)