Netflix’s content, subscribers to remain king

Some analysts say the company’s potential is still underestimated

Netflix is set to deliver its second-quarter earnings results Monday, and many expect the report to cement the company’s dominance over the internet-based TV streaming industry.

Wall Street analysts estimate that Netflix will report a profit of 79 cents a share on sales of $3.94 billion for the quarter that ended in June. During the same period a year ago, Netflix earned 15 cents a share on $2.79 billion in revenue.

But, when it comes to Netflix, the number of the company’s subscribers is at least as important as its earnings, because growing its user base is what pushes Netflix’s profits and revenue higher.

When Netflix reported its firstquarter results back in April, it said it expected to add 6.2 million new subscribers in the second quarter, to give it a worldwide total of 131.2 million subscribers. Netflix said it expected to add 1.2 million new subscribers in the United States, and 5 million more in its overseas markets.

Doug Mitchelson, of Credit Suisse, said in a research note that while competition will always be a concern, it isn’t as great of an issue for Netflix because of the nature of what’s called the subscription video on demand (SVOD) market.

“Many consumers will adopt multiple services if they have differentiated content and reasonable pricing,” Mitchelson said. “Netflix’s content flywheel, while well known at this point, is still underestimated (over the) longer-term.”

Mitchelson started his coverage of Netflix with an outperform rating and a stock-price target of $500 a share. That estimate is more than 19 percent higher than the $418.65-a-share price where Netflix closed on Wednesday.

Dan Ives, head of technology research at GBH Insights, said that the likes of Hulu and Amazon Prime can’t rival Netflix in the amount of time viewers spend watching the services’ programming. Ives said in a research note that a recent GBH survey of streaming TV viewers found Netflix subscribers average more than 10 hours of viewing time a week compared to around five hours a week that Amazon and Hulu subscribers put into watching those providers’ programs.

Ives called that difference in viewing time “an eye-popping disparity.”

“While the landscape for original content has become increasingly competitive, with new entrants entering the market by the day,” Ives said, “we believe Netflix remains in a unique position of iron-like strength to grow its content and distribution tentacles over the next 12 to 18 months.”

Ives holds a rating of highly attractive, or buy rating, and a $500-a-share price target on Netflix’s stock.