Netflix will see ‘cash flow explosion’ by 2020: analyst

Netflix may have had a weak second quarter, but there are some on Wall Street who are still very bullish on the stock.

Netflix stock plunged in the last week after posting weaker-than-expected second-quarter subscriber numbers and revenue, but Equity Research managing director David Miller, has put a 12-month target price of $503 per share.

“Our $503 target is based on a discounted cash-flow analysis using the capital asset pricing model,” Miller told FOX Business’ Stuart Varney on “Varney & Co.” on Friday. “We think there’s going to be a free cash flow explosion in this company by fiscal ’20.”

In a letter to shareholders, Netflix executives said the company had “over-forecasted” its global net subscriber growth targets for the second quarter.

While Miller also shared that view, he noted that once the company begins spending efficiently investor confidence would grow.

“Right now they are burning cash and that seems to be capturing a lot of headlines,” he said, “But once you get up the critical mass relative to the addressable market, let’s call it 2.7 billion [high-speed] internet households around the world, you don’t need to spend $500 million a quarter on marketing. You don’t need to spend $400 million a quarter on technology and development — that all gets kind of nursed off.”

Netflix added 5.2 million paying customers in the second quarter taking its subscriber base to 130 million worldwide. The company expects to add about 5 million subscribers in its third quarter, including 650,000 in the U.S.

Netflix is expected to spend as much as $13 billion on its original content offerings this year in a bid to lure new subscribers, according to Goldman Sachs data cited by The Economist.