SunTrust Robinson Humphrey upgraded Netflix shares on Friday to buy from hold, citing strong subscriber trends in the third quarter and promising opportunities in India.
The firm said its Google search trend analysis showed domestic subscriptions and international subscriptions tracking above consensus.
“Our Subscriber Tracker (through July) points to 3Q Domestic/Int’l subs tracking solidly in-line/ahead,” SunTrust analyst Matthew Thornton wrote in a note to investors Friday. “Note: Netflix hasn’t missed subs 2 quarters in a row since 2012,” he added.
At the same time, SunTrust lowered its price target for Netflix NFLX, +3.50% to $410 from $415, citing the company’s second-quarter subscriber miss. In its July 16 earnings announcement, the streaming giant said it had added 5.15 million streaming users, a substantial drop from the 6.2 million estimate it provided in April. Shares of the company have fallen 12.7% since then, though they have gained 82% in the year to date. The S&P 500 SPX, +0.55% has gained 7.5% so far this year.
Read more: Netflix shares fall 13% as streaming giant misses subscriber, revenue expectations
Thornton is mostly optimistic about Netflix and especially interested in its opportunities in India. “India is the key incremental market for Netflix in our view,” he wrote. The market is much larger than that in the U.S., he said, and he predicts the size gap will only widen over the next ten years.
Netflix Chief Executive Reed Hastings said earlier this year that the company’s next 100 million subscribers would come from India, but the streaming giant faces significant challenges there. There are multiple local and global competitors, such as Indian video streaming firm Hotstar and Amazon Prime Video AMZN, +0.53% and pricing could be an issue. Netflix is currently available in India for a monthly subscription fee of $7 to $12 (500 to 800 rupees), significantly more expensive than the average pay-TV option. India also has far fewer broadband households than the U.S.
But Netflix has set up partnerships with local set-top box and mobile companies, such as Videocon, Bharti, Vodafone and Tata Sky, which Thornton thinks is a good move. He also expects the company to ramp up production of Indian originals, which have so far been warmly received by Indian audiences, based on SunTrust’s Google search trends analysis.
“Netflix appears to be gaining ground on an absolute and relative basis based on app store and search data,” Thornton wrote in his note. The company’s app is the most downloaded entertainment app in India’s Apple app store, according to SunTrust.
Netflix recently increased subscriber fees in Japan, and Thornton thinks that could be suggestive of strong subscriber trends. The streaming company also started testing a way for users to register and pay for the streaming service while bypassing Apple Inc.’s app store and hefty commission fees, another possible indication of strong subscriber trends, he wrote.
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