Netflix Upgraded To Buy From Neutral On Belief Of Strong Q1 Subscriber Adds

By Trey Williams Markets MarketWatch Pulse

Netflix Inc. may be in for a first quarter of strengthening subscriber numbers, according to analysts at UBS led by Doug Mitchelson, who upgraded the stock to buy from neutral. Shares of the streaming giant were up as much as 1.7% in premarket trade on Monday. Despite a period of fewer original content releases, Mitchelson wrote he sees upside to Netflix's subscriber guidance given growth in Europe and Latin America, as well as modest improvements in Japan. Netflix, after reporting adding 7.1 million subscribers in the most recent fourth quarter, is guiding for 5.2 million additions. Analysts tracked by FactSet, on average, expect the company to add 5.3 million subscribers. "Netflix is certainly well-liked and not inexpensive, but we do see the potential for Netflix to exceed Wall Street subscriber growth expectations and believe that concerns regarding competition and content costs are misplaced," Mitchelson wrote in a note to clients. He also noted that commentary around the success of Netflix's integration with Comcast Corp.'s X1 set top box is encouraging, leading to lower churn as more deals roll out. However, Mitchelson said a concern worth following is the potential for a newly Republican Federal Communication Commission to roll back, or otherwise eliminate net neutrality rules. Shares of Netflix have gained nearly 37% in the trailing 12-month period, while the S&P 500 index is up 19% during the same time frame.

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