Analysts won't always see eye-to-eye, and that's just what's happening with Netflix (NASDAQ:NFLX). RBC Capital Markets is singling it out as a top buy Monday morning, encouraged by new surveys of subscribers in the U.S., U.K., and Brazil. RBC Capital Markets is making it the firm's No. 1 buy as it sees room for Netflix to continue increasing prices as the scalable value of its content offerings continues to grow.
RBC analyst Mark Mahaney was on CNBC Monday morning, elaborating on the bullish call. The upbeat thesis stems around three major points.
- Churn rates appear to be improving, as customers surveyed are less likely to cancel now than they were during the last time they were surveyed three months ago.
- Amazon.com's (NASDAQ:AMZN) Prime Video is less of a competitive threat than originally feared. RBC's surveys found that consumers using Amazon Prime's included video offering are more fanatical about Netflix's service than those subscribers that aren't using Prime Video.
- Older international markets for Netflix are scaling as profitably as the U.S. in the early days.
That's the good news for Netflix shareholders. The bad news is that Axiom Capital analyst Victor Anthony sees it another way. He's initiating coverage of the stock with a Sell rating and an $80 price target that suggests 18% of downside off of last Friday's close of $97.58.
Anthony's argument appears to be in conflict with Mahaney's observations. He argues that domestic subscriber growth has slowed, in part, because the competition is getting smarter. He feels that Amazon's Prime Video -- the same platform that wasn't a threat in Mahaney's subscriber survey -- along with HBO, Hulu, and other streaming services are eating into Netflix's growth.
Anthony sees the competition intensifying in the near future. The launch of HBO Now, Hulu growing into what he sees is Netflix's fiercest stateside rival, and the trend for cable providers and networks launching stand-alone platforms should weigh on Netflix's growth.
He also points out that he's not buying Netflix blaming recent price hikes for the weaker than expected second quarter subscriber tally and its disappointing net additions forecast for the current quarter. Anthony feels that competition is the biggest roadblock to growth for Netflix and its mature domestic operations these days.
There are also valuation concerns, something that tends to be at the heart of many bearish arguments. Anthony points out that Netflix is trading at an enterprise value-to-EBITDA multiple of 48 based on next year's forecast, well above the multiples of market darlings and the average multiple of 14 for online media stocks.
The valuation knocks may seem more problematic for bulls than the competition fears, but it's also where Netflix has the greater potential to stand out. Netflix's multiplex have been held back by costly international expansion. This is still a scalable model, and even though subscriber growth has certainly slowed it's still moving in the right direction. There will always be disagreement when it comes to Netflix. This also probably won't be the last time that a bullish analyst note collides with a bearish one.