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Buy Netflix (NFLX) Stock Before Q4 Earnings, After It Raised Streaming Prices?

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Netflix (NFLX - Free Report) saw its stock price climb 6% Tuesday after the streaming TV powerhouse raised its prices on all of its streaming plans for the first time in over a year just a few days before it reports its Q4 financial results. The rate hike comes as Netflix continues to spend billions of dollars on original content as it prepares to fight off competition from Disney (DIS - Free Report) , Apple (AAPL - Free Report) , and others.  

Pricing

Netflix raised its prices on all of its plans, with the higher prices going into effect immediately for new customers. Meanwhile, current customers will see their bills climb over the next few months, according to reports. The company’s most popular standard plan, which allows users to stream on two devices at once, climbed from $11 to $13 per month. The company also lifted the price of its basic plan to $9 a month, up from $8. Meanwhile, the company’s four-screen, premium offering popped from $14 to $16 a month.

Netflix’s new rates represent between a 13% to 18% price hike and mark the largest increase since the company launched streaming 12 years ago. Netflix last raised its prices in October of 2017. “We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience for the benefit of our members,” a Netflix spokesperson told The Associated Press.

Shares of NFLX climbed over 6% through late-morning trading Tuesday to roughly $353. Investors should note that despite the streaming firm’s post-Christmas rally, Netflix stock still rests roughly 17% below its 52-week high of $423.21 a share. This sets up what could be a solid buying opportunity for those high on Netflix.

Outlook

Along with its newly raised prices, Netflix has also seen a wave of positive analyst activity over the last few weeks. Raymond James analyst Justin Patterson upgraded Netflix stock from “outperform” to a “strong buy,” citing the company’s approaching profit inflection, strong content slate, and much more. Patterson also slapped a new $450 a share price target on NFLX.  

UBS also voiced positivity for NFLX stock last week. Analyst Eric Sheridan lifted his rating from “neutral” to “buy” and upped his price target to $410 a share. Plus, Goldman Sachs (GS - Free Report) analyst Heath Terry reiterated his buy rating and $400 price target.

With that said, Netflix’s content spending, which is set to reach $13 billion in 2018, has made some investors nervous. But the reason for the spending is simple: Netflix and CEO Reed Hastings understand that the firm must spend on content in order to roll out award-winning and buzz-worthy shows and movies in order to attract new subscribers and retain current members in an ever more crowded streaming market, where its competitors, such as Amazon (AMZN - Free Report) , have much more money to play with.

Q4 Estimates

Looking ahead to Thursday, Netflix’s Q4 revenues are projected to surge 28% from the year-ago period to reach $4.21 billion, based on our current Zacks Consensus Estimate. This would mark a slowdown compared to Q3’s 34% climb and Q2 and Q1’s 40% expansion. Meanwhile, NFLX’s full-year revenues are projected to jump 35% from $11.69 billion in 2017 to reach $15.81 billion in 2018.

Moving on, the firm’s adjusted Q4 earnings are projected to plummet 39% to $0.25 a share. Despite NFLX’s expected Q4 downturn on the bottom line, its full-year 2018 earnings are expected to skyrocket 110.4% to reach $2.63 per share, with further earnings growth projected in 2019.

Despite its growing revenues and negative cash flow concerns, subscriber growth might still be the metric Wall Street cares about the most. Netflix expects to add 9.4 million subscribers in Q4 to help bring its worldwide total to 146.5 million. For reference, Netflix added 8.3 million users in the prior-year quarter and 6.96 million in Q3.

Bottom Line

Netflix has exploded from content aggregator to original TV and movie powerhouse and legitimate Hollywood-style studio in roughly five years. Obviously, Netflix will soon face competition not only from Hulu and Amazon Prime, but also Disney, Apple, and AT&T (T - Free Report) . And let’s not forget that giants such as Google’s (GOOGL - Free Report) YouTube have original content and Facebook is focused on rolling out more streaming offerings.   

But Netflix boasts more users than its current peers and has a massive head start on the newcomers. Netflix also recently took home more Golden Globes than any another other network or streaming service and ended HBO’s 17-year run at the top of the Emmy nomination last year. And if we look at recent jumps from fellow streaming firms such as Roku (ROKU - Free Report) , it seems hard to think Netflix won’t at least climb by its old highs at some point in the near future.

Netflix is currently scheduled to release its Q4 financial results after the closing bell on Thursday, January 17.

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