Three key data points indicate that Netflix Inc.'s (NFLX) movie empire is so massive and entrenched that it will withstand attacks by rivals including Walt Disney Co. (DIS), Inc. (AMZN), Hulu, and others, according to one Wall Street analyst. The tech giant, slated to post its first quarter financial results later this month, will not only succeed in warding off rivals, but should see its stock rise more than 30%, per a recent report by Raymond James analyst Justin Patterson, as outlined by Barron’s.

3 Indicators That Netflix Will Stay in the Lead

  • Netflix’s reviews and ratings are higher in number and better in rating than Amazon and Hulu
  • Netflix app is downloaded far more than Amazon Video
  • Google Trends search data indicate Netflix originals compare favorably with that of Hulu and Amazon releases

Source: Raymond James, per Barron’s

It's a Popularity Contest

Competition in the on-demand streaming space has ramped up. Apple Inc. (AAPL) recently announced its dive into the entertainment space with the launch of Apple TV+ this fall. Disney, which cut ties with Netflix in order to offer its own service, is expected to debut it later this year. Nonetheless, Netflix investors shouldn’t worry too much about competition, writes Raymond James, attributing the upbeat outlook to a few key indicators.

Patterson highlights data points including the sheer amount of rating and reviews of Netflix content versus competitors, writing that they are “a proxy for both audience size and content quality.” The average Netflix original has more than twice the IMDb reviews as Amazon and five times that of Hulu. The streaming leader also has better review scores than both rivals.

Second, Netflix’s app is still much more popular than Amazon Video, in terms of quantity of downloads, says Patterson. “Despite significant content investment and the value of the Prime Service, Amazon’s reach—as measured by app download ranks across countries—is far below Netflix,” wrote the analyst.

The Raymond James analyst pointed to Google Trends search data which he says indicate that Netflix originals compare favorably with that of Hulu and Amazon releases. “Search data carry intent and signal customer interest,” he wrote.

Patterson’s $470 12-month price target on Netflix shares implies a 30% upside from current levels. He rates the stock at a strong buy. Closing down 1.1% at $261.41 on Monday, Netflix shares reflect a 35% gain YTD compared to the broader S&P 500’s 15.5% gain over the same period.

A Lot Remains Up in the Air

Despite his optimism, Patterson notes that his bullish thesis is “somewhat theoretical.” Much remains reliant on unknown factors including pricing and programming details for Apple and Disney’s anticipated streaming subscriptions.

Some analysts are betting on Disney giving Netflix a run for its money with Disney Plus steaming. CEO Bob Iger has dubbed the initiative Disney’s “biggest priority” for 2019, with much of the original programming expected to lean on the company’s popular franchises like Marvel and Star Wars. The service also has the competitive advantage of being the only place that users can stream new Disney movies after they premiere in theaters. Disney also owns ESPN+, and now controls Hulu after its blockbuster deal for 21st Century Fox Inc. (FOXA) closed last month.

Looking Ahead

As Netflix gears up to report its most recent quarterly results at the end of April, Raymond James warns that there could be some short-term volatility as a result of potentially lackluster Q2 guidance. 

“There could be noise around second-quarter guidance,” wrote Patterson. “Game of Thrones and Avengers competition, a lighter content slate, foreign-exchange-rate volatility, and phasing of price increases warrant a more conservative guide. That’s fine. The second half of 2019 is ultimately what matters, and that’s where we see upside risk to consensus manifesting.”