Goldman: Wall Street is Underestimating Netflix

Shares of leading on-demand entertainment platform Netflix Inc. (NFLX) have room to run, according to one team of bulls on the Street who expect the Los Gatos, Calif.-based tech giant to beat consensus estimates in the upcoming year. 

In a note to clients on Tuesday, Goldman Sachs wrote that while Netflix has outperformed the Street's forecasts for net subscriber additions over the past five years, estimates "continue to understate the company's future growth, both near and long-term.". As Netflix expands its subscriber base, it should post financial results "well above" consensus estimates, allowing the stock to continue to outperform, according to the investment bank. 

(See also: Why Credit Suisse Sees NFLX Climbing to $470.)

Mobile Viewing to Boost Netflix's Global Addressable Market

Goldman analyst Heath Terry forecasts 30 million net subscriber additions in 2019 versus the consensus estimate of 25 million. He attributes the upbeat outlook to the streaming company's growth prospects in emerging markets like India, the most populous democracy, where the audience is swiftly transitioning from in-home television viewing to out-of-home mobile viewing. While 70% of Netflix streams currently run through connected TVs, Goldman views a broad shift to mobile device viewing as rapidly expanding Netflix's total subscriber pool. 

In the second quarter, Netflix plunged as much as 14% on lower-than-expected subscriber growth, its first miss in more than a year. Analysts were forecasting 6.3 million net adds, compared to the 5.2 million Netflix secured in Q2. 

Moving forward, Goldman is confident Netflix will more than erase Q2 losses as the Street "underestimates its global addressable market, the impact of incremental content spending, and the growing value of Netflix to both distributors and content creators." Terry added that Netflix still risks falling short of estimates in Q3, but prospects for long-term outperformance far outweigh negative headwinds. 

Terry, who rates Netflix at Buy, has a 12-month price forecast of $470, implying a near 25% upside from Tuesday close. Trading down about 1.1% at $377.14, Netflix stock reflects a 96.5% return year-to-date (YTD), compared to the S&P 500's 9.3% increase over the same period. 

(For more, see also: Netflix to Spend $13B on Original Content in 2018.)

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